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 that 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 – and done so on a relative shoestring – to entry 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 the key risks of an investment in Tesla. We hope you enjoy it.
The risks facing Tesla investors
The big risk with Tesla's stock is simply that the company will never be able to generate earnings high enough to justify its current stock price. Pure electric cars are just one of several technologies competing to reduce the world's dependency on oil — and not the leading one (that would be hybrids). While the future is hard to predict, from today's vantage point the chances of Tesla achieving six- or seven-figure annual vehicle sales totals seem much smaller than its chances of (at best) profiting as a niche producer of geek-chic autos and supplier of specialized technology to larger automakers.
But Tesla will have to fight to get even that far. There are two big challenges: First, can it convince buyers beyond its gadget-geek base to take a chance on an electric car, when recharging infrastructure is still sorely lacking in the U.S. – and when the alternatives are some of the best gas-powered cars made? Second, if Tesla does find a sizable market, how will it fend off global automotive giants like General Motors (NYSE:GM), Ford (NYSE:F), and Volkswagen (NASDAQOTH:VLKAY), which have much greater resources and enormous economies of scale?
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 comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.
Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford and Tesla Motors. Motley Fool newsletter services recommend Ford, General Motors, and 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.