Why Elon Musk and Tesla Motors Inc. Stock Are Having a Great Week

A look at why shares of Tesla are driving higher this week, and at what is powering the move.

Jan 16, 2014 at 10:42AM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of electric-car maker Tesla (NASDAQ:TSLA) are charging higher following a late afternoon interview with CEO Elon Musk on CNBC earlier this week.

So what: The interview was chock-full of new information and clarified some concerns, and followed Tesla's revelation that deliveries in the fourth quarter totaled 6,900 compared to previous guidance of "slightly under 6,000."

Now what: First, Musk clarified that the "recall" was little more than an over-the-air update, similar to a software update on your cell phone, and that it doesn't make sense to call it a recall. For other car manufacturers, you have to bring your car in for service, and that's not the case with Tesla. The update took place last month. Musk said that the word "remedy" would be an accurate way to describe it rather than recall. In a tweet, Musk cleverly said that the word recall needs to be recalled.

Second, Musk pointed out the safety aspect of its vehicles. To date, Tesla is the only auto manufacturer yet to have any deaths or serious injuries experienced by consumers. Musk stated, "It's simply impossible to have a car that's safer than the Model S." This factor is helping to drive strong and steady demand.

Third, he reiterated a prior forecast that Tesla hopes to be producing 800 vehicles per week at the end of the year, but that may change for the better; it's something for investors to consider leading up to the earnings report and conference call scheduled for next month. Musk added, "I'm confident that we can beat that number at a very minimum."

Fourth, Musk commented about China. Tesla is hoping to have first shipments on a boat to China next month for a March delivery. Musk believes that toward the end of the year we'll see "very significant sales in China." He mentioned for the first time that "the most enthusiastic people for our car are people from China." Also, the right-side driver version of its Model S will be coming out in April, a necessary and important step for a number of foreign markets.

Fifth, Tesla expects volume production of its next model, the Model X, to begin in the first half of next year. Musk expects production to begin slowly then grow "exponentially" just as was seen (and is still being seen) with the current Model S. First deliveries of the Model X are expected to begin a year from now with volume production three to four months after that.

Finally, Musk spoke a bit about the Model E which will be the automaker's entry model. This is key to tapping the consumer mass market. The challenge is solving the large-scale battery production that will be necessary for the vehicles.

Tesla had mentioned in its last earnings conference call some vague, very preliminary plans to open a "giga factory" to produce and recycle batteries. Apparently those plans have been solidified. Musk said he's very excited about it, and it will be done in partnership with some other companies. He stated, "It's shaping up very well, I'm very excited about it. We're making the final selection as to what state it will be in in the next month or so." 

Look for analysts to upgrade their estimates, and for Tesla to raise its own estimates for the first quarter of 2014 and the full year. While Tesla may still appear richly valued, both the top and bottom lines stand a chance of accelerating, and it could be only a matter of time before earnings begin to catch up with valuation. Tesla may not be for everybody on the long side, but cautious Fools should avoid betting against it.

Read this before you even think of buying a Tesla
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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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