A Deep Dive Into Tesla Motors Inc: Part I

Tesla Motors makes amazing cars, but the valuation of the stock is hard for many investors to get behind.

Jul 10, 2014 at 6:15PM

While the company's electric vehicles may be widely loved, Tesla Motors' (NASDAQ:TSLA) stock is a different discussion. There's no doubt that the company is a disrupter, but the question is, how much disruption is already priced into the shares? I'm going to take an in-depth look at the company in this four-part series. We'll start by looking at what Tesla does. 

What cars does Tesla make?
Originally, Tesla produced the Roadster. The convertible was introduced in 2006 and produced from 2008 to 2012. However, the car that investors and consumers have come to know and love is the Model S. 

Roadster

Tesla Roadster. Source: Tesla Motors.

The Model S received the highest Consumer Reports ever for an automobile: 99 out of a possible 100 points. It also scored as high as possible on safety ratings from the National Highway Traffic Safety Administration and has the longest driving range on a single charge of all current electric cars.

The Model S and its EPA-estimated 265-mile range got folks' attention, but the coming Model X is gaining excitement from both investors and consumers. 

The sporty SUV can go from zero to 60 mph in less than five seconds. The dual-motor all-wheel drive setup allows for better handling and traction, while the "Falcon Doors" enable the driver to enter and exit the car with incredible ease. The doors, which open vertically, can also be fully opened in the most narrow of parking spaces. 

Tesla is taking pre-orders for the Model X, which is scheduled to be delivered in the first quarter of 2015. More about the Model X can be read here

There's also the "Gen III," which might be available in 2017. Not a whole lot is known about this sedan, other than it will be a less expensive alternative to the Model S. Tesla CEO Elon Musk believes the car will be competitively priced between $30,000 and $35,000, according to the Fool's own Leah Niu. 

It certainly seems that Tesla can actually make electric vehicles appealing to the public. For instance, if you head over to the Tesla website right now and buy a Model S, it won't be delivered until October. Sure, the company doesn't have the type of volume output that General Motors and Ford do, but clearly there is demand. 

What about that Supercharger network thingy?
If you're not familiar with the Supercharger network, think of it like a free gas station for Tesla cars. Owners can charge 50% of their Model S in 20 minutes, 80% within 40 minutes, and drive an EPA-estimated 170 miles after charging for 30 minutes. 

More charging info is available at Tesla's website, here.

Model S

Model S. Source: Tesla Motors.

Tesla today has 98 charging locations in North America, and that number is set to grow. By the end of 2014, the Supercharger network should cover 80% of the U.S. population, then an astounding 98% of the population by the end of 2015.

(A great, interactive chart of current and coming Supercharger stations in North America, Europe, and Asia can be viewed on Tesla's website, here.)

No other automaker has built out such a network, which is likely one of the reasons why adoption for electric vehicles has remained quite low. Tesla can change that, with its safe, good-looking, gas-free, and no longer range-restricted electric vehicles. The Supercharger network is a big task, but one that is necessary to further drive adoption of the Tesla brand.

The Gigafactory 
Tesla plans to finish building (opens to a helpful and detailed PDF) its "Gigafactory" by 2020. The plant could be up 10 million square feet with roughly 6,500 employees, occupying as much as 1,000 acres. It is essentially an enormous battery factory that would be capable of mass producing enough batteries to supply 500,000 cars per year. 

The plant is expected to cost roughly $5 billion and be located in Arizona, Nevada, New Mexico, or Texas. The fear is that Tesla, which has admitted to having "no experience in the production of lithium-ion cells," will run into expensive and complicated headwinds. The project could also take longer and be more expensive than expected, all of which is mentioned in the company's 10-K annual report

Model S

Model S. Source: Tesla Motors

Should it succeed, Tesla says the Gigafactory could drive down battery costs by more than 30%, by minimizing "costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead." 

Just like the Supercharger network, the Gigafactory, assuming it is completed without any major flaws, will enable Tesla to increase production and reduce costs. That would be an important step over the long run for investors and the company. 

The Foolish takeaway
Tesla, by all measures, has done a relatively flawless job in making electric cars cool, convenient, and efficient. The vehicles don't sacrifice looks or performance for their fully electric capabilities.

So far, other companies producing electric cars have only done a so-so job. Tesla is the first to release a game-changing vehicle. In Part II, we'll dissect Tesla's earnings results and examine what generally accepted accounting principles versus non-GAAP results could be shadowing from investors. 

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

Bret Kenwell 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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