Tesla Motors Inc (NASDAQ:TSLA) should feel pretty good about its dominant sales position in the U.S. luxury sedan market, but it doesn’t really mean much when it comes to where TSLA stock is headed these days.
After all, Tesla shareholders will vote on its proposed acquisition of SolarCity Corp (NASDAQ:SCTY), which could result in truly massive capital needs.
But first let’s talk about the feather in TSLA’s cap. According to internal data acquired by Bloomberg, Tesla crushes its rivals when it comes to sales of large premium cars.
I mean, it’s not even close.
The automaker sold 9,156 of its Model S in the third quarter, a jump of 59% year-over-year. Those results toasted the runner up; Daimler AG (OTCMKTS:DDAIF) saw sales of the Mercedes-Benz S-Class fall 9% to 4,921.
At BMW (OTCMKTS:BMWYY), sales of 7-Series vehicles more than tripled, but still came to only 3,634. Toyota’s (NYSE:TM) Lexus LS, Volkswagen’s (OTCMKTS:VLKAY) Porsche, Audi — you name it — all trailed by wide margins.
Indeed, the Tesla Model S accounted for just under a third of all sales of large luxury sedans in the U.S. in Q3. That’s unequivocally good news for anyone holding Tesla stock.
Sure, the market for such cars is relatively puny (U.S. sales of cars and trucks comes to about 17 million a year), but it’s great for the brand.
TSLA In Need of a Pile of Cash?
It also serves as a distraction from the potential implications if shareholders give a green light to the SCTY acquisition. Analysts at Oppenheimer said Thursday that a successful merger will require stunning amounts of fresh capital. From a note to clients:
“We believe a combined entity will face cash needs in four key areas: stationary power capex (primarily solar), auto capex, working capital and operating lease obligations. In total, we expect the combined company needing ~$12.5B for capex through 2018 sourced from a combination of asset-based debt, system refinancing, tax equity and corporate debt …”
If true, that should give Tesla shareholders pause. Oppenheimer makes another salient point. A combined entity will be much harder for investors to understand and forecast. That could tamp down demand for shares. Here’s Oppenheimer again:
“Combined entity could prove challenging to model. While we have published a pro forma of our Tesla and SolarCity estimates in a combined model, we believe investors will be concerned with visibility into the business and believe the way the company handles reporting segments will be critical to the size and interest of the investor pool in Tesla and potential stock movement post-close.”
It’s clear that Tesla is killing it when it comes to selling big premium vehicles. The new Model X SUV is doing well too. SCTY threatens to become a distraction for the automaker — and could bloat its balance sheet.
Maybe Tesla should forget about SolarCity and just stick to what it’s good at.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.