Last week, when Elon Musk unveiled his company’s latest project, the sleek, all-electric Tesla Model X SUV, green tech analyst Jeff Siegel described the car as “the first deathblow to the conventional auto industry.”
It’s a bold statement, sure enough, but bold seems to be Musk’s calling card — and frankly, given how rapidly electric vehicle technology is advancing, I wouldn’t be so quick to write the celebrity CEO off.
Although Musk is known for his larger-than-life ambition, it’s undeniable that Tesla Motors (TSLA) produces genuine feats of engineering.
When I visited the Manhattan Tesla dealership in Chelsea, I had the opportunity to test one of the company’s electric cars for myself. The ride was almost unbelievably quiet and smooth, like a spaceship — and hands-on details like that have helped build the rock-star aura of the franchise.
Pomp and circumstance aside, when it comes to TSLA, the battery is key, and this is what the move into residential power storage is all about. The Tesla Gigafactory 1, a lithium-ion battery factory, is under construction now in Nevada scheduled to be operational by next year or 2017.
I’m sure Musk has considered this upshot, too: TSLA has to build the batteries for its cars anyway, so why not expand further demand for electric storage by offering fixed deployment cells for home solar power as well? It’s a genius way to accelerate the ramp from hype to a real mass market enterprise.
Lots of Upside Left for TSLA
Now that green energy is on the up-and-up, companies like TSLA tapping into the rapidly developing technology can reap the benefits of being innovators. In fact, we made a killing in my Inner Circle service earlier this year buying into SolarEdge Technologies (SEDG), TSLA’s residential solar partner.
On the other hand, companies too stubborn to adapt will suffer in the coming years — just look at Volkswagen, facing billions of dollars’ worth of fines and damage claims for its emissions test scandal. A smarter decision would have been to invest that money into crafting an environmentally-conscious vehicle from the get-go. But now that the company has landed itself in a deep pile of you-know-what, it’s too little, too late.
Still, TSLA isn’t the only player on the field — other car manufacturers like Honda Motors (HMC) are announcing electric cars, and each has as much, if not more, access to capital. But Tesla has the brand loyalty of those who have already bought into its futuristic appeal.
In the here and now, I’m watching for TSLA to return to profitability by the end of this year. After that point, the company looks like it will be at the sweet spot where the margins get easier: All it really needs is to ramp up sales by 30% to 50% a year to drive triple-digit earnings growth, which Wall Street currently thinks is worth a multiple of roughly 43 times anticipated 2017 EPS.
Tesla is far from a value play, but it’s not quite priced for the moon either. If you believe the potential, now is a better opportunity to buy in than we’ve seen in a while.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
