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Why I Opened a Position in Tesla Today

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January 16, 2014 – Comments (4) | RELATED TICKERS: TSLA

 Today I opened a position in Tesla Motors (TSLA). 

*Gasp* 

I know, I know, Pencils is a hypocrite judging from this article: www.fool.com/investing/general/2014/01/03/why-im-not-investi...

However, the latest preliminary guidance from the company -- despite driving the stock price up over 15% this week -- has given me confidence in the company's ability to meet (and exceed) its lofty expectations. This week Tesla announced it is expecting to exceed sales guidance by 20% in the 4Q 2013:

Tesla (NASDAQ: TSLA) sales in the fourth quarter of 2013 were the highest in company history by a significant margin. With almost 6,900 vehicles sold and delivered, Tesla exceeded prior guidance by approximately 20%. - http://ir.teslamotors.com/releasedetail.cfm?ReleaseID=819303...

In other words, without any funds going toward marketing, the cars are quickly selling at rates beyond Tesla's initial projections. More importantly, Tesla has been able to expand its production capacity and begin to meet this increased demand. In addition, Tesla's supercharger network is quickly expanding, making the roll-out of electric cars all the more feasible as Tesla vehicles continue to gain popularity. 

In my article from earlier this month, I overlooked the release of Tesla's Model X this year. The Model X is a blend of an SUV and minivan, with deliveries beginning in 2014 and carrying over into 2015 (http://www.teslamotors.com/modelx). The Model X will be priced under $100,000, perhaps slightly above the $70,000 price tag of the Model S. 

Now, the big kahuna: the Model E. Any Tesla investor knows (or should know) that the stock is especially hinged upon terrific execution of producing, rolling out, and profitably selling the Model E. The Model E -- Tesla's mass-market vehicle which will sell for $35,000 and up -- will mark an incredible innovation in the automotive industry, making electric cars affordable and even preferable for many people compared to other vehicles (electric or otherwise) on the market. 

In a recent interview this week on CNBC, Elon Musk mentioned that one of the primary challenges for the Model E is mass-producing batteries that can be used in the vehicle. Tesla is currently forming partnerships with a variety of businesses to build a "Giga factory" to produce batteries, which Musk anticipates to be the largest battery factory in the world by far. In the CNBC interview, Musk says they plan on identifying the factory's location within the month:http://video.cnbc.com/gallery/?video=3000235888

With all this said, the stock is still pricey which places a great deal of pressure on the company to execute near-flawlessly in the coming years for the stock to be a market-beating investment. However, Musk and company have proven their projections to be accurate (or, if anything, an undershot) as well as their ability to boost Tesla's innovation and production levels over time. 

Put in other words: I think it is more likely than not that the Model E will be released in 2017 and shake up the industry as expected. In the meantime, Tesla is boosting production of the Model S (expecting to deliver at least 40,000 vehicles in 2014), Model X production begins this year, and the company is taking steps to mass-produce batteries needed for the Model E's eventual production and release (with the trial versions coming out in 2015). 

Elon Musk is a brilliant scientist and quality entrepreneur. As I've said before, someone like Musk will come with a high price tag, whether it is with Tesla or SolarCity. In Tesla's case, while the stock will undoubtedly be volatile going forward, I would not be surprised to see the company grow into a $60 billion+ valuation over the next five years as the Model E is released and Tesla's overall production capabilities expand. In terms of present-day numbers, the stock looks pricey with a market cap of $20 billion, but the company has continued to set and meet (or exceed) ambitious innovation and production targets. 

I realize my timing might strike people as silly, but I am actually glad to have waited until the preliminary guidance numbers were released earlier this week. Those numbers proved to me that Tesla is expanding its production capacity, selling Model S cars like crazy (despite a $70,000+ price tag), and is gearing up for a bigger year in 2014 and beyond. Imagine what this will look like in three years with a $35,000 Tesla car. And remember all of this is happening without a dime going toward marketing. 

Should the stock get hammered, I will likely add to this initial position. For now, however, the long-term likelihood of success (and market-beating returns) simply outweighs the reasons to continue to sit on the sidelines and wait for certain metrics to line up. To sum it up: I am comfortable opening a position at today's levels, and would gladly take the chance to add to this position if the stock gets clobbered by the market at some point(s). I recognize that the stock is selling at a premium, but Tesla's performance has continually reiterated why the stock should be selling at a premium. 

I'll be sure to follow Tesla here going forward. Now that I actually opened a position, expect the stock to get clobbered 20%+ within a week. :) 

Best,
David K

4 Comments – Post Your Own

#1) On January 17, 2014 at 5:03 PM, rofgile (99.43) wrote:

Would you rather own TSLA (after a 500% rise in latest months) or F?

TSLA is now valued about about 2/5 the market capitalisation of GM or F.  Are they really going to own 2/5 the auto market?

-Rof

(I think either we really are in a wild bull market, or people are getting too optimistic lately) 

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#2) On January 18, 2014 at 3:19 PM, Stockllama10 (52.58) wrote:

Slow down there, Rof!

If TSLA is 40% of Ford's market cap stake, they will own 40% of Ford's share of the auto market (and even that's dubious: take Apple!), not 40% of the auto market. Unless you think Ford owns all of the auto market. In that case, you're wrong.

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#3) On January 18, 2014 at 9:12 PM, blesto (31.03) wrote:

Elon Musk also runs SpaceX to, right?

And Tesla vehicles are the only production vehicles that could operate on the Moon, right?

 Woot woot! All Luner Terrain Moon Races!

Now that would be some good advertising.

What?!? It could happen.

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#4) On January 21, 2014 at 11:59 AM, SweetMircha (93.54) wrote:

I'd bought Tesla shares back in 2012 in daytrading & sold it for a gentle profit months later. I'm now wishing that I'd gone long hold on those same shares. A rolling stone gathers no moss was my motto with it at the time.

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