3 Areas Tesla Motors Investors Must Watch

Tesla Motors (Nasdaq: TSLA  ) has built only a few thousand cars during its short lifetime, but it has already become a big deal: Its Model S sedan, Motor Trend's Car of the Year, has found itself an avid following well beyond the eco-minded gadget geeks who made up most of the audience for electric cars before now.

That's huge. That Tesla has established itself as a credible competitor in a business with enormous barriers to entry -- and done so on a relative shoestring --is arguably an even bigger achievement.

It's easy to be enthusiastic about Tesla's prospects. But there are good, serious reasons to be cautious as well -- enormous challenges still lie ahead for the upstart Silicon Valley automaker. I created a premium research report on Tesla to help investors understand those challenges, and the opportunity presented by the company.

Following is an excerpt from the report, laying out three areas that Tesla investors must watch. We hope you enjoy it.

Area one: Tesla's cash
Tesla CEO Elon Musk recently said that he expects the company to be "cash-flow positive" before the end of 2012. Tesla recently raised almost $200 million from a secondary offering. But development of Tesla's next model, the Model X SUV, will eat into resources, as will any failure to meet the company's ambitious sales goals. As with any start-up, it's essential to keep a close eye on Tesla's remaining cash – and burn rate – going forward.

Area two: Tesla's sales and orders
Can Tesla "cross the chasm" from its early adopter fan base into the mass market? That's one of the central challenges facing the company. Will Tesla be able to sell the Model S to mainstream buyers who own and are basically happy with a car like a Mercedes-Benz or a Lexus? Tesla has made a practice of announcing its order total every quarter, which needs to continue to grow significantly for Tesla to thrive. Watch that number closely.

Area three: The competition
 If Tesla's products do gather steam in the marketplace, it won't be long before the big automakers try to eat Tesla's lunch. If and when that happens, two things will bear close watching: How well do the major automakers' entries compete with Tesla's cars, and how will Tesla respond?

Looking for more insight?
That was just a sample of The Motley Fool's new premium report on Tesla Motors. If you're weighing whether the company is a buy or sell, this new report is an essential resource for investors seeking to understand the potential ups and downs of an investment in the electric-car manufacturer. Not only that, but the report also comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.


Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2012, at 9:56 PM, TruePp wrote:

    Area one: Tesla's cash

    Tesla burned $125M last quarter. They got over $300M cash atm. They should become cash flow positive this very month.

    Area two: Tesla's sales and orders

    Total reservations for Models S is over 15,000. Model X got over 2,000 reservations. Current reservation rate is exceeding 400 cars a week (MT car of year award probably helped).

    Area three: The competition

    No electric luxury sedans/SUV are on the horizon. Cadillac ELR probably closest thing to Model S. But that is hybrid.

  • Report this Comment On November 19, 2012, at 10:01 AM, TMFMarlowe wrote:

    "Area three: The competition

    No electric luxury sedans/SUV are on the horizon. Cadillac ELR probably closest thing to Model S. But that is hybrid. "

    Here's the problem: You don't know what's "on the horizon", and neither do I. Hence the admonition in the article.

    What we do know is that none of the global automakers have *announced* an electric luxury sedan or premium SUV. That doesn't mean nobody's working on one. Big automakers often keep such things under their hats until the cars are close to production.

    I have reasons to suspect that at least two or three direct Tesla competitors are under development. (The Cadillac ELR isn't really a Tesla competitor.) When and whether they'll see the light of day is a different question, but don't be surprised if the game changes during this winter's auto-show season.

    John Rosevear

  • Report this Comment On November 19, 2012, at 11:36 AM, sheldonross wrote:

    I wouldn't be too worried about number 3 either. The bureaucracies at the big manufacturers can't get out of their own way long to expend the resources and capital building a legitimate competitor.

    Oh no Nissans releasing the Leaf 2.0 run for the hills. LOL

  • Report this Comment On November 19, 2012, at 11:51 AM, jamesdan567 wrote:

    All three of these factors are IRRELEVANT compared to what really matters for Tesla.

    First, Tesla must be able to build its own batteries to replace the expensive ones they are getting from Panasonic.

    Second, Tesla must be able to build and monetize its network of MFR owned stores and recharging points nationwide,

    Third, I am not going to tell you but its more important than one and two.

    Mr. Rosevear's s premium report is worthless. Even if someone knows what the future should be they cannot predict the level or likelihood of success.

  • Report this Comment On November 19, 2012, at 8:58 PM, TMFMarlowe wrote:

    "The bureaucracies at the big manufacturers can't get out of their own way long to expend the resources and capital building a legitimate competitor. "

    This is wishful thinking, not investment analysis.

    "First, Tesla must be able to build its own batteries to replace the expensive ones they are getting from Panasonic. "

    Why? They can't do it cheaper than Panasonic without scaling up to Panasonic's scale -- which makes it a whole separate business, one that would presumably involve selling batteries to other automakers -- and it's not gonna happen anyway: Panasonic is an investor in Tesla. Battery prices will come down in the next few years as volume (from Tesla and others) continues to grow.

    "Second, Tesla must be able to build and monetize its network of MFR owned stores and recharging points nationwide,"

    If its stores are taking orders for vehicles, which they are, they're already "monetized." More stores wouldn't hurt, but only as long as Tesla can fill the orders. As for the recharging points (which will only work with 85kwh Teslas, last I heard)... they exist to overcome potential Model S buyers' objections and to help upsell into the big battery option, not to generate revenue. Maybe in time they could be made more universal and monetized somehow, but I'd hardly call it a priority.

    John Rosevear

Add your comment.

DocumentId: 2118120, ~/Articles/ArticleHandler.aspx, 4/17/2014 8:22:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement