TSLA: Tesla Stock Faces a Stiff Ride Ahead

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Tesla Motors Inc (NASDAQ:TSLA) shares were briefly smacked a few days ago after an Elon Musk conference call didn’t quite live up to the buzz generated beforehand.

TSLA: Tesla Stock Faces a Stiff Ride Ahead

Selling on TSLA stock jumped on news of a “Range Assurance” application alerting drivers to nearby charging stations when low on charge. Commentators laughed Musk’s Range Assurance off as a glorified fuel gauge, disappointed from intense speculation after Musk tweeted on Sunday that TSLA would “end range anxiety.”

The drop in TSLA stock was a microcosm of the 30%-plus drop since last September as Elon Musk’s reach continues to exceed Tesla’s grasp.

Musk has even had to fend off accusations that he tweets to inflate the share price:

“Some people seem to think I tweet to affect the share price. This is false. A brief rise in $TSLA stock obviously does no good for Tesla or me.”

Nonetheless, he can’t help the fact that Tesla stock often moves on his every breath. All TSLA stock holders can hope for is that Musk will continue to be able to dodge the open manholes littering the terrain ahead.

Tesla Gets Competition from Like-Minded Brands

Whether you think electric vehicles are good investments or not, it’s clear that Tesla Motors has started something. Richard Branson’s Virgin Group is currently building electric cars for Formula E, and Branson doesn’t dismiss directly competing with Tesla in the consumer electric car business, aiming to make low-cost electric vehicles “sexier” than those offered by General Motors Company (NYSE:GM) or Daimler AG (OTCMKTS:DDAIF):

“Virgin Racing has shown that electric cars can be sexy. That’s where you start, and then you create cars for twenty-five, thirty thousand dollars for everybody.”

That’s one heck of a price, considering Tesla cars go for roughly $70,000.

Then there’s Porsche Auto ADR (OTCMKTS:POAHY), which rumor has it is building a midsize sedan to compete in the less-crowded EV space. Then there’s Apple Inc. (NASDAQ:AAPL), whose capital expenditures in manufacturing mimic key automakers and hires include former employees from GM, Mercedes … even Tesla.

Suddenly, Tesla Motors isn’t the only cool kid in town.

Not that Musk is cowering. In fact, he is on record as saying he wants more automakers to invest in electric cars, even criticizing the auto industry for not producing enough EVs.

Still, while his bravado might inspire confidence in Tesla Motors, shareholders rarely consider more competition to be a boon.

Tesla Aims High With Gigafactory, but Selling Batteries is a Challenge

Tesla is gearing for growth by aiming at the fast-moving energy storage market, building its Nevada Gigafactory with SolarCity Corp (NASDAQ:SCTY) and Panasonic Corporation (ADR) (OTCMKTS:PCRFY).

The construction of the Gigafactory will cost Tesla as much as $5 billion. Tesla’s balance sheet shows a little less than $2 billion in cash and SCTY has less than $1 billion in cash and short-term investments, so Tesla is issuing $1.6 billion in bonds to go toward construction.

There’s plenty of opportunity here, too, but with the kind of risk typically reserved for James Bond missions.

The ability to supply its own batteries will allow Tesla to ramp up production and meet the demand currently outpacing its car availability. TSLA expects its Gigafactory to produce enough batteries for 500,000 electric vehicles per year by 2020.

But again, Tesla isn’t alone. TSLA faces a multitude of competitors including LG Chem Ltd, Samsung and Johnson Controls Inc (NYSE:JCI).

Even without that dense competition, Tesla Motors still faces the question of whether demand — which currently outstrips supply — will meet its future production goals. Deliveries of Tesla electric vehicles disappointed last quarter, even on lowered forecasts, but Musk is projecting his company to deliver around 55,000 vehicles globally this year. The only way those 500,000 batteries get used in 2020 is if Tesla keeps ramping up sales at a rapid pace, or if it becomes a source for numerous other EV producers.

And just for kicks: In the short term, low fuel prices aren’t putting the pedal on consumers as far as looking for alternatives to gas-powered cars.

Bottom Line

Elon Musk will struggle to maintain the faith in TSLA stock, at least for the short term. He needs results, and those only come out every few months.

As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities. 

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/tsla-stock-tesla-motors-electric-vehicles/.

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