Is Tesla America's fourth automaker?

The electric-car maker is on the road to becoming the first rival to break the hold of Detroit's Big 3 in the public's imagination. Can it sustain this success?

By TheStreet Staff May 15, 2013 2:24PM

thestreet logoNight vision © Allan Baxter, Digital Vision, Getty ImagesBy Chris Ciaccia, TheStreet

 

To say that Tesla Motors (TSLA) has been a wild ride in recent weeks would be an understatement. The company is now profitable, and Wall Street analysts are falling over themselves to raise price targets on the stock. Tesla is no longer referred to as an electric car manufacturer. It's being referred to by one analyst as America's fourth car manufacturer.

 

Morgan Stanley analyst Adam Jonas raised his price target to $103 from $47, reiterating his "overweight" rating on the shares, noting that Tesla has addressed fundamental concerns about its market. "Competency in technology is migrating to engineering, manufacturing and marketing," Jonas wrote in a research note. "Detroit, Munich, Wolfsburg and Toyota City must feel a sense of astonishment . . . with a hint of anxiety."

 

Tesla has been able to do four major things to help its business model and, in the process, become the first major car company to successfully go public since Ford Motors (F) in the 1950s. By selling its zero-emission vehicles credits to other companies, Tesla has been able to fund itself using other people's money, Jonas notes. The company's new financing product multiplies the addressable market for the Model S. I've found myself increasingly wanting to own one, so it's clear that Tesla's market is expanding, and rapidly.


An exceptionally strong brand 

The wild ride in Tesla's stock is being driven by vastly improved fundamentals. But it's largely due to an enormous short position in the name. As of the end of April, there was nearly an 8-days-to-cover-ratio on Tesla, and that was after the company pre-announced its first-quarter earnings, saying it would be profitable on both a GAAP and a non-GAAP basis. 


That's driven the stock up more than 104% over the past month, an exceptional run. And while the squeeze will not last forever, it's clear the market is rapidly re-rating Tesla as traders come to better understand the business model. Jonas suggests that the high share price could allow the automaker "to be opportunistic with tucking-in new equity capital with minimal dilution."

 

The brand that Tesla and its chief executive, Elon Musk, have created is exceptionally strong. Jonas notes that the Model S has already  been named car of the year by Motor Trend and was given the category's highest-ever rating from Consumer Reports, better than any ranking that Ford or General Motors (GM) has received from the magazine. 


Tesla recently raised its sales guidance for 2013, ahead of a meaningful expansion in Europe and China, which is slated to begin later this year. "It's just a very compelling automobile -- arguably, one of the most important in automotive history," Jonas noted.

 

CEO Musk has noted that there are still two parts to the Tesla "trilogy" (a play on words, as there has been already three major announcements). Each of these announcements could move the stock sharply in one direction or another, based on the hype surrounding the company.


Not without warts 

That isn't to say that Tesla is without warts. A large portion of the share price move is being driven by short covering, and that will end at some point. The company also generates a significant portion of its cash flow and risk management from its regulatory credits, Jonas noted. "Credits such as ZEV (Zero Emission Vehicle credits) and GHG (Greenhouse Gas credits) that Tesla accumulates from a surplus of long-range EVs that they can sell to competing manufacturers at auction are a big deal to Tesla." 


The regulatory environment on selling credits could change, so this is something Tesla will need to keep an eye on. It's worth noting that Tesla has said that it doesn't want to rely on selling credits for the long term.

 

Tesla appears to have become the first company to successfully break the hold of the "Detroit 3" (Ford, GM and Chrysler) in garnering attention and mind share as an American automaker.

The company is still in its early growth stages, so it's going to be a while before anyone has any idea just how large the market is for electric cars.  

  

More from TheStreet.com

13Comments
May 15, 2013 10:48PM
avatar
Make a electric care with a reliable range of 350 miles at 30 grand without tax credits, everyone will be buying one. If Tesla can pull that off along with it's other higher priced models, Tesla would become the number one automaker.
May 16, 2013 6:36AM
avatar
Natural gas the only way to go for the USA.. But that's the smart move and the US congress will never push it .. It makes too much sense... Tesla burns coal !!!! Any questions ! The goal is to move away from coal burning for electricity...
May 16, 2013 11:35AM
avatar
There will be a lot sucked in on this great unproven Company. The electric car future needs a lot of bugs worked out of the engineering concept.  Highways' and road travel rules will take billions to modify, and you can believe that the electric car owners will pay in fees and tax's on those vehicles...We need a new power source other than batteries, and we are far away from getting it right now, so be careful where you invest your money...
May 16, 2013 12:56PM
avatar
When speculators bet on a company, a toy plant can be blown to be a top automaker.
May 16, 2013 3:57PM
avatar
If quick Charge Batteries are available and reliable, I can see where many of the current issues can be solved. Keep in mind that across the country, rest stops are everywhere. How hard would it be to have available quick charge stations across the Nations. I won't claim to know all the basic tech but I wonder about how much range you could get from a quick charge on the move as oppose to a full charge. At the end of the day, you completely juice up.
May 16, 2013 9:14AM
avatar

NO, these are just 3rd or 4th cars for people. A real car people can't wait half a day for it to recharge.

 

The only reason they sell is they are welfare cars with HUGE tax credits.

 

All the performance doesn't mean anything with half a day downtime.

 

Make a car you can swap out the battery at a gas station like a cordless drill in 5 minutes or less, then they will be real cars.

 

Right now they are just driving foodstamp billboards.

May 16, 2013 12:27PM
avatar
A car that sells for $100,000+ is going to save the auto industry? There are only so many rich people who can afford this tax subsidized (by all of us!) second car toy. Then what?
May 16, 2013 2:34PM
avatar

Is Tesla America's fourth automaker?-No, it is not. There, confusion and uncertainty over. When they can produce at least 250,000 to 300,000 units per year, employ 30,000 and have around 3 billion in sales and service revenue then they’ll be a major automotive player.

 

They have built a nice PR machine, in fact, this may be their greatest green invention yet.

 

Here is the article I would like to see “Elon growing Green with the Government, Goldman and the Gullible”.

May 17, 2013 10:03AM
avatar
Tesla has a great start.  However, they are several years away from
producing an "affordable" vehicle ($30,000).  Not many have the money
for a 60k+ Tesla and even if you did, it doesn't make financial sense.
My 2010 Toyota Yaris cost $10k in 2012 and gets 40 mpg.  I'll take that
plus 50k free gas right now over the Tesla.  50k =12,500 gallons@ $4/gal.
12,500 gallons of gas@40 mpg=500,000 miles...equivalent to a round
trip to the moon before you begin seeing any cost savings of the current
Tesla in the above example!

May 16, 2013 4:01AM
avatar
USA has natural gas. Electric engines burn coal. Make them so cars run on natural gas. The air one breathes will be cleaner.
May 16, 2013 12:27AM
avatar
Tesla is on the verge of ushering in a new era in transportation.  We are witnessing the outset of a massive migration toward electric vehicles.  They will become the norm and in historical terms, the change will be rapid.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT TECHBIZ

Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.

RECENT POSTS

Apple's Cook won't rush new products

In an interview, the CEO says the company is taking the time to get them right. 'Our objective has never been to be first. It's to be the best.'

VIDEO ON MSN MONEY

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min

MSN MONEY'S