Tesla Motors Inc (NASDAQ:TSLA) co-founder and CEO Elon Musk said it didn’t occur to him that the company could pay off its Department of Energy loan almost immediately until just a couple of weeks ago. And yet, it did. Now investors just can’t stop talking about Tesla.
Tesla Motors’ Loan Repaid Early
The EV automaker paid off the loan it received under the DOE’s Advanced Technology Vehicles Manufacturing program on Wednesday. The payoff came nine years early and was made using $1 billion earned in the sale of shares and debt. Bloomberg reporter Alan Ohnsman reported that the amount was $300 million more than they originally thought the company could get.
A team of analysts led by Adam Jonas and Paresh Jain at Morgan Stanley compiled a list of the five most common questions they received regard Tesla Motors Inc (NASDAQ:TSLA) last week. They said Tesla is their top pick in U.S. autos, even though they were skeptical about the potential of electric vehicles.
Nonetheless, the analysts said in their report that the early level of product success Tesla has isn’t something that can be denied. They believe the company’s progress is “a combination of technology, strategy and management execution.”
Two of the questions answered by the team of analysts were related to the regulatory credits the automaker has made millions selling, and the other three were about the EV market and Tesla’s place in the auto market as a whole.
Tesla Motors’ And The Regulatory Credit Market
First, investors asked about the size of the regulatory credit market. Eleven states have adopted the rules regarding regulatory credits, and that makes up about 29 percent of auto sales, in the analysts’ calculations. They give a “theoretical US market potential” of around $22 billion. They said the market outside the U.S. is undetermined but could be “potentially very significant.”
Second, they asked about how it’s possible to assume that the revenue from those regulatory credits will keep going if Tesla Motors Inc (NASDAQ:TSLA) has guided for them to taper off to almost nothing by the fourth quarter.
The analysts point out that there’s no reason for the automaker to raise investors’ expectations for this type of revenue because it is going to end eventually. They believe Tesla is doing the right thing in this area: simply enjoying this unique capital raise while it lasts and using it to pay for capital expenditures as it develops new products and technology.
Tesla’s Place In The Auto Market
The third question was about the addressable EV market size, and in Jonas and Jain’s view, it’s about affordability, range and density of charging stations. Currently Tesla Motors Inc (NASDAQ:TSLA) estimates that less than 1 percent of households in the U.S. are able to purchase a Model S, although that goes up to 10 percent which could afford the monthly payments on the Model S through its financing plan. The analysts said this would put a global market size of between 7 and 8 million units.
However, if Tesla comes out with a $40,000 vehicle (compared to the current $93,000 price tag of the Model S), with a $250 per month car payment after gas savings, then they said the only limit to sales would be charging station infrastructure.
Could Other Companies Push Tesla Out?
The final two questions answered by the analysts could basically be put together into one. Investors also wanted to know what’s stopping other automakers from either 1) flooding the market with EVs or 2) just buying Tesla out. The analysts said at this point Tesla has proprietary technology that other companies don’t have.
In terms of another company buying Tesla Motors Inc (NASDAQ:TSLA) out, the analysts believe the automotive industry probably must be revolutionized by a relative newcomer rather than a company that’s been around for a long time. They also said the company’s cultural would be put at risk if it were bought out and that Musk is too involved in every aspect of the company to even think about it being bought out.