Tesla Motors Inc (NASDAQ:TSLA) has major expansion plans as everyone knows, but what we don’t know or are wondering about is the reason CEO Elon Musk revealed plans for new developments without first maximizing sales from the current models. A report from DailyFinance by Justin Loiseau explains the hidden motive.
The billionaire CEO is a smart businessman, which he has proved time and again. The stocks of the company are up around 180 percent this year. However, the CEO is not much concerned about market movements.
What’s the Reason?
Elon Musk made the announcement for the company’s next-generation models after the flagship Model S posted sales of 4,750 units in the first quarter, which was 5.5 percent over expectations. The CEO revealed a new and compact SUV sedan with a price tag of $35,000 and 200-mile ranges. The new model perfectly fits Tesla’s vision of producing a product for the masses.
However, some of the experts are of the opinion that the new model may tempt buyers to postpone their current purchase in expectation of a newer and a cheaper model.
Tesla Motors’ Popularity
The electric vehicle company does realize that its present popularity is due to the Tesla Motors Inc (NASDAQ:TSLA)’s Roadster, Model X, and Model S. But these models, due to their premium pricing and less efficient technology, lack mass appeal. The CEO believes the new announcement will help in maximizing sales for its upcoming additions despite poaching some sales from the current models. The less expensive models will help the company to enhance the brand and economies of scale for the automaker.
Mass production is important for Tesla, in order to fully utilize the capacity of its factory, which is capable of producing 500,000 vehicles. Tesla Motors Inc (NASDAQ:TSLA)’s plant was earlier used by Toyota Motor Corporation (NYSE:TM) and General Motors Company (NYSE:GM). The factory, started in 1980, was purchased from Toyota in May 2010 for $42 million.
Tata Motors is a Similar Example
Tesla’s plan is similar to that of Tata Motors Limited (NYSE:TTM). The Indian automaker acquired Ford Motor Company (NYSE:F)’s Jaguar Land Rover Company for only $2.3 billion. Tata Motors has since attained decent success in maximizing sales of the brand. In April, Jaguar reported sales of 4,710 units while Land Rover sold 23,790 units. Sales for the brands were up 12.2 percent yearly and enjoyed 30 percent growth in the U.K. and Asia Pacific.