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The Outlook For Tesla Motors


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Why Investors Are Excited About The Outlook For Tesla Motors

Tesla Motors Logo
With electric carmaker Tesla Motors, Inc. (NASDAQ:  TSLA) taking the stock market by storm, many traders and investors are wondering about the outlook for Tesla Motors and whether further gains in the company’s stock price are likely.  Tesla Motors’ stock has been on a tear, going from approximately $34 per share in March 2013 to over $250 in February 2014, an over 600% gain.

The thing that has investors excited about Tesla Motors is that despite being an automobile company with the word “Motors” in its name, Tesla is actually a hybrid automobile / technology company that is literally setting the technological standard for automobiles in the 21st century and is pushing the envelope on battery technology.  Tesla’s electric cars are not only breaking barriers when it comes to travel range, the company is also producing high technology cars that include many advanced electronic features and high performance cars that accelerate extremely quickly.  The company is branching out into building their own lithium-ion batteries that they intend to use in their electric cars and to sell to other companies that need advanced lithium-ion batteries, such as solar energy installers.

The Outlook For Tesla Motors

Tesla’s stock has become a major momentum stock that has reached an lofty market capitalization of over $30 Billion.  The company’s founder and chairman, Elon Musk, is highly regarded for his visionary outlook and determination in developing and producing a new generation of electric vehicles that has the public excited about buying Tesla electric cars.

Tesla Motors Model X

While the company’s current electric car offering, the Model S, is rather pricey, with a sticker price that ranges from $65,000 to $100,000, the company has had no problem finding buyers for their cars at this high price point.  Tesla is planning on introducing a new model called the Model X during late 2014 that will be a full-size crossover utility vehicle (CUV).  The Model X will sell in a similar price range as the Model S, targeting high-end consumers.

The company is planning on entering the compact to mid-size car market in 2015 with a new model called the Model E that is expected to sell for approximately $35,000.  The Model E will put their cars within reach of many upper middle-income consumers.  With a driving range of approximately 200 miles and a network of recharging stations growing throughout the United States and Europe, Tesla has a real shot at capturing market share with a reasonably priced Model E offering.

Tesla is not only making money selling cars.  The company accumulates environmental credits for each zero-emission electric car that it sells to customers in states that adhere to the zero-emission vehicle standard.  They in turn sell the environmental credits to other automakers that need to meet the zero-emission standard.  Tesla makes up to $35,000 from environmental credits for each car that they sell in applicable states.
Lithium Ion Battery
Tesla also announced they are planning on building a lithium-ion battery factoring in the United States that analysts have dubbed the Gigafactory.  By building their own lithium-ion batteries, Tesla will not only save money on a key component for their cars, but they also will be able to sell batteries produced at the factory to other users of lithium-ion batteries, opening up a new revenue stream and profit center.

Reasons To Be Cautious About An Investment In Tesla Motors

While Tesla Motors has made incredible gains in recent years and many analysts and people in the Wall Street investment community think the country has a bright future ahead of it, there are reasons to be cautious about investing in the company.  The main reason to be cautious is simply the current market capitalization for Tesla.  At over $30 billion, Tesla already has a lot of future growth expectations priced into the stock. If sales do not live up to projections, and the company disappoints when it comes time to report revenue and earnings, the stock could drop in price, as the market lowers the company’s perceived valuation.

As is the case with many companies involved in the roll out of cutting edge technologies, Tesla’s stock has raced higher on expectations by investors that the company has a game-changing technology that will someday translate into tens of billions of dollars in sales and a higher stock price.  Such expectations may be correct, but they also may be misguided and proven wrong.  It is very hard to predict how technology will change and develop over time.  If electric cars become viable and the major automobile manufacturers start to mass produce electric cars, it could leave Tesla as a niche player in a crowded market.  Although Tesla’s electric cars are innovative and modern, consumers may opt to purchase a less expensive electric car from a well established automaker that has a network of dealerships and a reputation to stand behind.

Reasons To Be Optimistic About An Investment In Tesla Motors

While there are risks associated with buying a high-flying stock like Tesla, there are also reasons to be optimistic about an investment in TSLA and the outlook for Tesla Motors.  Tesla is certainly not the first high-flying stock to reach a lofty valuation that raised the ire of many skeptics.  Long-term winning investments in Amazon and Google both were subject to speculation that they were grossly overvalued soon after they became publicly traded companies.  With a 2014 Price to Earnings Ratio (P/E Ratio) of 74.0 and Price to Sales Ratio of 14.9, TSLA is richly valued.  The key is whether or not Tesla’s projected sales growth can live up to expectations.  If they do, the company may very well grow into its current lofty valuation and continue to grow from there, rewarding current shareholders with a higher stock price.

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