Proof That Demand for the Tesla Motors, Inc. Model S Is Healthier Than You Think

This new indicator to watch will help you predict future demand.

Feb 13, 2014 at 8:00PM

Demand has been so strong, you would think that Tesla (NASDAQ:TSLA) had the most popular commercial aired during the Super Bowl. Nope, Tesla has still refused to spend a single dime on advertising. If there was any concern about value and demand of Tesla's electric cars, there is a new indicator should quickly remove any last doubt.

Tesla Naias

Tesla draws a crowd. Source: Tesla Motors

The production and demand imbalance
Not to beat a dead horse, or a dead gas-powered car, but as I and other Fool contributors have mentioned many times, demand for Tesla's vehicles is far greater than production. As CEO Elon Musk put it, "We really are production constrained not demand constrained." 

The result is a long wait for customers around the world from the time of orders until the time of delivery. Tesla even has had to ration out deliveries to different parts of the world to avoid the waits getting too, too long -- such as in Europe where in some cases customers have been waiting for two to three years. This means the company had to put some North American customers on hold.

The new indicator
But the long wait times don't necessarily mean sales will be higher over time. It could be argued that this backlog of orders stems from a time when production was a fraction of its current rate. Perhaps production is just now catching up and the outstanding order flow will level off, right? Not so fast.

Basic economics teaches us that if there's a true demand and supply imbalance above and beyond current market rates, then the true "fair market" price equilibrium is something higher, possibly much higher. In the case of Tesla according to a new report from iSeeCars, its used cars sell for more than its new cars.

In case it's not obvious, this means that Tesla is underpricing its vehicles versus what it could charge and demand is truly much higher and can be supplied in much greater quantities. Let's face it: Vehicles, not even those made by Tesla, aren't like fine wine. They generally don't improve or appreciate with age. People are obviously so desperate to get a Tesla Model S that they're willing to pay a premium to get their hands on one right away, even if it's used and has less intrinsic value than a brand-new one.

Tesla and China
Tesla announced that it was pricing its cars in China at the exact same level as it does in the rest of the world even though it could get away with double that amount following standard auto industry practices. Tesla wants to be seen and known as a company that does things differently, and all the different things that Tesla does keeps headlines about the car company on the front page. The company doesn't spend a cent on advertising, so one could argue that all those headlines serve as a form of advertising.

Musk noted in a tweet that the used car prices are evidence that the car values are holding up. While I agree with almost everything Musk tends to say, on this I'd disagree. Used car prices offer far more evidence of underpricing in the first place rather than value holding up. Put another way, if you had two virtually duplicate Tesla cars to sell and one was brand new and the other had, say, 1,000 miles on it, it would be quite a stretch to assume the used one would fetch the same price let alone a higher price. The premium for a used Tesla likely means that you can get it today and not have to wait in line for long time, and most people would rather just pay more than wait a long time.

Foolish final thoughts
The premium for used Teslas suggests that, if the new ones were available immediately, the "true" market price would be much higher. For Tesla, it's almost exclusively a race to see how fast it can ramp up production while keeping the profit margins of that production as high as possible (and maintaining quality and safety in the process). For investors, it's a watch-the-production game more than anything else as well. Tesla still has a long way to go to justify its current stock price, but if production capacity gets much larger it's possible for that to happen. We will know more about current and projected production when Tesla reports officially next week.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information