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Why Tesla's Real Problem Is its Investors

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Shares of Tesla Motors (NASDAQ: TSLA  ) have been extra volatile lately. The stock took a hit at the start of the month, after the New York Times published a questionable review of Tesla's all-electric Model S sedan. But the downturn was short-lived. Nearly a week later, the stock soared 6 %, marking its biggest single-day climb since November of last year. Unfortunately, the move higher didn't last long, either. Investors hit the brakes again this week after the electric-car maker reported a wider-than-expected loss for its fourth quarter . Let's take a closer look at what's really at play here.

Fasten your seatbelts
Investors drove shares of Tesla lower by 10%  yesterday on worries over rising costs at the California-based company. Tesla posted a quarterly loss of $0.78 per share, whereas analysts were expecting a per-share loss of just $0.53 for the period . Also of concern is the fact that operating costs increased 29%, to $114.7 million .

To be fair, increased expenses are something that investors should have expected. You can't build a world-class auto company from the ground up and expect to get by without burning through massive amounts of capital in the process. While Tesla CEO Elon Musk is very talented, he isn't a magician.

Fortunately, it wasn't all bad news that came out of the earnings report. On a brighter note, revenue in the quarter came in stronger than expected at $306.3 million . Still, some analysts voiced concerns over demand for the zero-emissions Model S. To that end, Musk explained:

If we were to close all of our stores today, we'd be sold out basically for the whole year. We've got reservations for roughly 15,000 cars, over and above what we've already delivered.

Tesla also said it was able to boost production of its Model S to 400 cars per day. The current production rate puts the company on track to hit its 2013 goal of delivering 20,000 vehicles by year end . Moreover, the EV maker plans to further increase production by 25% in the year ahead .

This is important, as it could help Tesla reach profitability ahead of schedule. "We really have very high confidence that we will have a profitable first quarter ," Musk said. Meanwhile, previous forecasts had expected the company to reach profitability closer to the end of fiscal 2013.

The long road ahead
All things considered, Tesla is right where it should be at this stage in the company's development. Rather, it is the investors who are to blame for the stock's wild mood swings. What investors need to understand is that this is not a short-term play. It will take many years for this company to reach its full potential and, along the way, the stock will certainly suffer. Will margins compress as Tesla opens new stores and pushes into new markets around the world? Yes.

Additionally, the narrow infrastructure for electric vehicles in the United States isn't going to change overnight. However, Tesla is proactively addressing these issues, and growing stronger in the process. The company now plans to have more than 100 solar-powered Supercharger stations installed throughout the U.S. by 2015 .

While these are baby steps toward widespread EV adoption, they are steps nonetheless. Production setbacks, negative reviews, and rising costs haven't been able to slow Tesla down. In fact, shareholders who stuck it out last year enjoyed the stock's 19% gain, which beat the S&P 500's gain of just 13 %.

The lesson here is that patient investors with at least a five-year time horizon are best suited for this stock. If you can't handle the high-risk, high-reward stakes inherent in shares of Tesla, perhaps a better match would be with a traditional automaker, such as Ford.

However, if you believe in Tesla's product, technology, and management, than be prepared to own the stock long into the future. Just don't expect a bump-free ride.

Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

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