Friday, January 17, 2014

Tesla Motors (Nasdaq - TSLA) -- Stock Price Jumps After Guidance Revision

Tesla Motors (Nasdaq - TSLA) shares hopped 15.7% on Tuesday after the company revised its guidance for Q4 2014. The price was up to $161.27 in after hours trading. It had closed Monday at $139.94.

Tesla confirmed earlier in the day that it sold 6,900 cars in the fourth quarter, a new record for the company as well as a roughly 20% increase over its previous guidance for the term. We've revised our full year 2013 revenue estimate to $2.41 billion and our EPS estimate to $.42. 

Demand for the Model S remains strong enough that the company will likely meet, and possibly exceed, its goal of 30,000 deliveries in 2014. Tesla is also optimistic that it will be able to begin shipping its new SUV offering, the Model X, sometime in the fourth quarter. The Model X will be priced about 6% higher than the Model S to start, or about $74,000. However, considering most customers will likely opt for the higher performance battery and other options, we're estimating most customers will wind up paying somewhere between $105,000 and $110,000. For these purposes, let's say $107,500 per Model X. If Tesla can deliver 200-300 Models X by the end of 2014, that's another $21.5 million - $32.3 million in revenue.

Elon Musk and a Model X

Perhaps the company is being optimistic, and the Model X doesn't arrive until early 2015. It won't have much of an impact long term. Tesla doesn't disclose reservation statistics any longer, but the general consensus is that about 7,000 orders were put in for the vehicle through the end of the fourth quarter. 

The price jump came despite Tesla also issuing a "recall" for a Model S charging adapter, which in some cases have heated up to the point of melting and have resulted in short circuiting and possibly fire. We put "recall" in quotation marks because no parts actually need to be replaced. The problem is being addressed with new software that Model S owners download and install to the car, so think of it more as an update. Tesla shouldn't fret too much about fire concerns as long as the incidents are few and far between. After all, gasoline powered cars can catch fire too.

The better-than-expected sales in the fourth quarter bode well for 2014 and beyond. The company is aiming to manufacture 30,000 cars in 2014, roughly 50% more than 2013. Tesla's factory in Fremont seems capable of getting the cars assembled. The main impediment has been getting its hands on the lithium battery packs. A new deal with Panasonic is expected to lower costs and give Tesla more battery inventory, but the pact won't alleviate the shortage in the near term.

Demand for the batteries will skyrocket once Tesla begins work on its third vehicle, a more affordably-priced car that's tentatively known as Model E. The car is still only being discussed, but the company is aiming for a $33,500 sticker price. Tesla is also considering building a factory of its own to meet battery demand.

Tesla shipped about 1,000 cars to Europe in Q3 2013, and is hoping to begin selling to Asia in 2014. The company is still expanding its network of Supercharger stations in America and Europe. There are 65 stations in North America, and 14 in Europe. The stations can give a battery a full charge in an hour, or top them off in about 20-30 minutes, free of charge. The Supercharger network still needs to expand considerably to make it more convenient for local drivers. The company boasts that a Model S can be driven across country without having to pay for a recharge. Realistically though, how many times will a person use the car to drive cross country? An average of once seems like a high estimate.

Current Supercharger network
Planned Supercharger network by year's end 2015

The difference between the network as it stands now (top) and what it projects to in 2015 (bottom) appears striking upon first glance, but the chargers are still spread far enough apart that using them for local driving will be a nuisance unless the car owner lives relatively nearby. Once the Model E arrives, though, owners could utilize the chargers to take long-range trips or vacations for free (though it'd be significantly more time consuming than flying). Tesla will keep adding the charging stations, which cost $150,000 - $300,000 per site, but don't require an attendant to monitor them.

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