Trademark trolls strike again in China.
In 2006, Chinese businessman Zhan Baosheng registered the Tesla name and trademark. The company's "dream is to build China's best electric car." Meanwhile California-based Tesla Motors' (NASDAQ:TSLA) dream to produce the world's best electric car is coming true -- in fact the company sold 5,150 of them in the second quarter. Should Tesla Motors' investors worry about Zhan Baosheng?
Ambitions and roadblocks
Tesla CEO Elon Musk is known for his ambition. He hopes to nearly double Model S sales in 2014 and expand the company's Supercharger stations in the U.S. from about 30 today to cover 98% of the population by 2015. Even more, he hopes to hit the right note with the mass market in three to five years, when the company plans to bring an affordable car to market.
These ambitions are certainly exciting for investors, but what happens if Tesla runs into a few roadblocks on the way? Already the company is facing litigation to stop it from bypassing dealer franchises and selling directly to consumers. And now Tesla might be forced to hand out some cash to gain access to the world's largest auto market.
As Reuters pointed out, Apple had to cough up $60 million last year for the rights to the iPad trademark in China. On a GAAP basis, Tesla Motors reported a $30.5 million loss in the second quarter of 2013. Is a $60 million roadblock something Tesla can weather?
Any roadblock that slows Tesla down most likely won't go over well with investors -- and, more importantly, it will affect the stock price. At today's price, Musk's ambitions are mostly already priced into the stock, leaving little room for hiccups.
Fortunately, however, this trademark issue seems more like a headache than a roadblock. At Tesla's current sales levels, $60 million is just a sliver of the company's most recent quarterly GAAP revenue of $401.5 million, which should continue upward. Even more, the Street's faith in the stock has infused the company with new capital. In the last month alone, the stock's market capitalization grew by about $4 billion.
Sure, Tesla could win rights to the trademark with nothing more than legal fees. But if Tesla does have to dish out a nice sum to enter the important Chinese market, it isn't a big enough problem to affect an investment thesis.