Unit volume growth will exceed revenue gains in 2014. Tesla plans to introduce a leasing program to broaden its potential market. The company will collect 100% of the sales price from its financing partners. But from an accounting standpoint revenue will reflect the underlying lease payments, spreading results out over a three year period. Tesla is guaranteeing the re-sale value of its cars after three years. That conditional adjustment requires to use of the lease accounting treatment. Volume should benefit as well from the beginning of international sales. Most of that will occur initially in Europe where gasoline prices are unusually high, making electric power even more attractive than in the U.S. Sales to Asia may begin, too.
Sales of power trains and battery packs to Toyota and Mercedes offer additional leverage. Toyota is building an all electric RAV; Mercedes, a B-Class sedan. Both rely on Tesla's underlying technology. Tesla's own next generation vehicle, the crossover Model X, remains in an early stage of development. Final design is slated for mid 2013. Deliveries could start in late 2014. The Model X is expected to sell for approximately two thirds of the $90,000 charged for the Model S sedan now in production. That will be a high risk, high return product line. Today's luxury model is being purchased mainly by extremely affluent customers who typically have other cars they can use in case they need to travel significant distances, or just need to travel period if the power goes out. The next group will consist more of everyday users.
Electric car technology remains a question mark. E-vehicles are likely to carve out a variety of niche markets where range isn't a limiting factor. Tesla is trying to expand its cars' driving potential. But the upside to that is limited by the company's use of lithium batteries. Mechanical and software engineering tricks may boost performance somewhat. But it is unlikely lithium ever will re-charge quickly or materially extend driving range. New battery technologies aren't showing much potential these days. So a competitive leapfrog is unlikely. Without major improvements, though, electric cars will have a hard time overtaking gasoline, diesel, and natural gas to become mainstream vehicles. Tesla is a great company and is well positioned to thrive in the electric car segment. Whether it break out from there remains to be seen.
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