Tesla Investment Case

Investment Case

Company/Asset: | Tesla Motors, Inc. |

Date: | November 11, 2013 |

Author: | Ishan Gupta |

Conclusion: | Short Tesla Motors, Inc. (TSLA) at $144.70. Buy at $100.Tesla Motors is an exciting, high growth company with a lot of potential to dominate a burgeoning industry. However, as the company faces substantial barriers to mass-production and only has a limited production sample to analyze it is risky to buy the stock as it is. Additionally, as a substantial part of its rapid rise came from retail speculation I would sell Tesla until its mature-production P/E ratio comes into line with other auto companies. |

The Opportunity Set: | Tesla “designs, manufactures and markets high-performance electric cars and powertrain components” (Hoovers). It is the only major automotive company that solely produces fully electric, rechargeable vehicles. Headed by tech-cult-icon Elon Musk the company has been lauded for its focus on eco-friendly technology as well as its ability to break into the highly guarded automotive industry. While the company currently only offers the Roadster model in its 16 stores Tesla plans to roll out the Model S and Model X in an attempt to reach a wider customer base.Drivers of Return Price of Oil & GasThe demand for electric cars is closely tied to the price of gas. Given that electric cars are substitutes for traditional gas powered cars and that one of the largest cost components for traditional car ownership is gas it stands to reason that Tesla return would be inversely correlated with gasoline price. Gas is currently around $2.60 per gallon which is relatively cheap.Two of the biggest issues facing electric car companies like Tesla are the comparative cost of energy and proliferation of charging stations. Catalysts One of the biggest upcoming catalysts for Tesla is going to be the introduction of the Model S, Model X and finally the GEN III lines. Any hiccups in the production ramp for these lines would mean...