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Tesla Motors Inc., Adam Jonas, and the Gigafactory

By Leah Niu – Mar 3, 2014 at 8:00PM

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It’s March 2011, Tesla Motors, Inc. is trading at $22, and you just bought in.

Let's say you had the opportunity to add Tesla Motors, (TSLA 0.73%) to your portfolio before it blows up again? The guy who thought that the electric-car company would grow exponentially in 2011 is predicting something equally as enticing today, and you should consider getting in on it. 

Time travel
Adam Jonas and Tesla have a long and loyal history. In 2011, the Morgan Stanley analyst was bullish enough to advise an overweight position on a company that offered a single very expensive car, the Roadster. Jonas had this to say about Tesla at the time:

The confluence of structural industry change, disruptive technology, changing consumer tastes and heightened national security creates an opportunity for significant new entrants in the global auto industry. California dreaming? We don't think so. In our view, the conditions are ripe for a shake-up of a complacent, century-old industry heavily invested in the status quo of internal combustion. The risks are high. So is the opportunity. Enter Tesla.

He went further, he valued Tesla (which was trading around a measly $26) at a whopping $70, a whole 148% increase. 

Roadster. Source: Tesla Motors

Now look what's happened
Okay, back to reality where Tesla now trades around $250 and the "Gigafactory" has just been announced. Jonas now says that he thinks the stock should actually be trading at $320. What do you do? You listen and strongly consider buying.

Here's what he had to say on Feb. 25:

Tesla's quest to disrupt a trillion $ car industry offers an adjacent opportunity to disrupt a trillion $ electric utility industry. If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again ... Tesla says it will team up with partners to build the world's largest Li-ion battery pack facility in the US. We reflect the potential for lower battery costs through higher sales volume nearly doubling Tesla's share of the global car market to 90bps by 2028, driving our target increase.

What does that mean? We're not in Kansas anymore folks, Tesla has its sights set beyond cars. 

Where is Tesla going?
Batteries. By 2020 Tesla and Panasonic will be able to produce 30 gigawatt hours per year. To put that in perspective, that's more than the entire world produced in 2013.

We're talking a huge chunk of Tesla's supply chain being internalized. Targeted to start manufacturing in 2017, the Gigafactory will manage everything from processing raw materials to the assembly of the batteries. 

Tesla Model S. Source: Tesla Motors

Is Tesla worth the premium?
Yes. Very much so, yes. Sure there are a number of risk factors to be considered when talking about taking on such a huge endeavor. But Panasonic doesn't seem to have any reservations, as the Tesla partner is inviting Japanese materials makers to sign on to back the deal. The expected total investment in the facility will be in the ballpark of $4 billion-$5 billion. 

With great power
So what does this mean for for the Model S maker? It means that Tesla can continue to focus on how to get it's third-generation car into as many hands as possible as quickly as possible. It means that Tesla exepmlifies innovation and opportunity. It means that Tesla has been and will continue to be a great buy. 

Leah Niu owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. 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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