by Susan J. Aluise | March 5, 2014 10:00 am
No doubt about it, Tesla Motors (TSLA) has been a wild ride. And investors’ faith in wunderkind Elon Musk’s electric car company has been richly rewarded — TSLA stock has gained more than 600% in the past year.
And if you got in on the ground floor with the company’s IPO at $17 per share back in 2010, you’re sitting on gains of more than Tesla: Should I Buy TSLA Stock? 3 Pros, 3 Cons1200%.
But if you missed out, is there still an opportunity to cash in on TSLA stock? After all, Musk — a serial entrepreneur whose background includes founding commercial rocket firm SpaceX, a partnership in green-energy venture SolarCity and a stint as PayPal’s president — is gearing up to turn the automotive world on its ear by bringing plug-in electric vehicles to the masses.
That raises the question: After such strong performance, does TSLA stock still have anything left in the tank? Here are three pros and three cons:
Exciting vehicles: Tesla Motors has come a long way since launching the all-electric Tesla Roadster sports car seven years ago. The automotive industry press has been impressed: The $69,000 Model S won Motor Trend’s 2013 Car of the Year Honors, and TSLA sold nearly 22,500 vehicles worldwide in 2013. Consumer Reports last month ranked the Model S its “best overall pick”. The Model X crossover utility vehicle is expected to enter production in 2015. But the true test of Tesla’s mass appeal will ride on a future all-electric vehicle in the $35,000 price range that Musk says is about three years away from launch.
Europe expansion: TSLA is setting its sights on Europe in a big way, announcing plans to expand its Supercharger network. At this week’s Geneva Motor Show, Musk announced that TSLA would open 30 new service centers and retail stores throughout Europe. The aim is to enable Model S drivers to drive across Europe for free using only Superchargers by the end of this year. By the end of 2014, TSLA believes combined sales in Europe and Asia will be double the North American total. It doesn’t hurt that the company will introduce a right-hand drive Model S in the U.K. this year.
TSLA’s ‘Gigafactory’: TSLA’s plans to invest $4 billion to $5 billion in a giant battery plant are a great illustration of Musk’s shrewdness. Tesla’s so-called “Gigafactory” — which counts Japan’s Panasonic as a majority investor — has set off a bidding war among at least four states (Arizona, Texas, Nevada and New Mexico) lured by the promise of new industry and 6,500 new jobs. On the business front, Musk’s move to vertically integrate TSLA’s manufacturing capability could drive down costs of the company’s larger, more powerful lithium-ion batteries. Musk is in the enviable position of being courted by multiple suitors — ensuring the best possible deal.
Retail model: TSLA’s showroom-based retail business model looks a lot more like an Apple (AAPL) Store than the dealer-networks of Ford (F), General Motors (GM), Fiat’s (FIATY) Chrysler, Toyota (TM) or other automakers. The consumer-direct model has been an effective way for TSLA to jump start sales, but it remains to be seen whether the company can continue to thrive and compete with entrenched competitors over the long haul without a dealer network. Another potential headwind: lawmakers in states like Ohio are mounting an offensive to outlaw TSLA’s retail model after independent dealer franchises cried foul.
Safety concerns: Lithium-ion batteries have been a technological wonder that blend the benefits of high-power and portability for everything from consumer electronics to commercial aircraft. But that combination also has sparked its share of headaches for manufacturers. In recent months, TSLA’s Model S has taken flack over battery fires in at least three vehicles — including a high-profile garage fire in California. Most significantly, the company issued a recall of some 29,000 charging adapters for the Model S in January, citing a fire risk. As TSLA seeks to pack even more power into lighter weight, less expensive batteries, further growing pains are likely.
More bubble than bonanza: TSLA stock has soared so quickly that near-term turbulence is nearly a given at this point. Even if Musk does have the Midas touch when it comes to his business ventures, it will be tough for the stock to continue to post these aggressive gains. Electric vehicle demand is still in its infancy, and the majority of North American consumers will not truly be ready to embrace the technology until it can deliver comparable price, performance and range to conventionally fueled vehicles. The Gigafactory also poses risks, particularly since the company recently issued another $2 billion in bonds to help finance the venture.
TSLA stock is a supercharged racer that’s two parts innovation, one part seduction – but in the wake of 1200% gains since its IPO, it’s running on fumes now.
So, should you buy TSLA stock? No. Although I’m confident that Elon Musk can continue to drive innovation for his breakthrough electric car company, the realities of transitioning the business from magic to mainstream will spark a retreat in TSLA stock for the near term.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
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