Tesla Motors Inc (NASDAQ:TSLA) is expected to have sold 21,000 units of the Model S in 2013. The fourth quarter manufacturing trends suggest that the company is highly likely to exceed that target. Tesla Motors Inc (NASDAQ:TSLA) stock has soared more than 350% in 2013 amid expectations that the company has immense growth potential, which almost nobody can deny.
Can Tesla increase sales by 20 times?
The table below shows the company’s market cap, annual car production and market value per car in comparison to other automakers. It shows that Tesla Motors Inc (NASDAQ:TSLA)’s value/car is $878,571. That’s more than 12 times the price of its flagship Model S.
Charlie Munger: Invert And Use “Disconfirming Evidence”
Charlie Munger is considered to be one of the best investors and thinkers alive today. His thoughts and statements on investment research, investment psychology, and general rational behavior are often incredibly insightful. Anyone can learn something from this billionaire investor and philosopher. Q2 2020 hedge fund letters, conferences and more If you’re looking for value Read More
Assuming a 13% operating gross margin, Tesla Motors Inc (NASDAQ:TSLA) earns $9,000 in profit from each Model S it sells. Honda Motor Co. Ltd. (NYSE:HMC) (TYO:7267) is the second most expensive in terms of market value per car produced. An analyst estimates that Tesla Motors Inc (NASDAQ:TSLA) will have to boost its production by at least 20 times to become twice as expensive as the Japanese company.
A 20-fold increase in sales is tough, but not impossible. Tesla Motors Inc. (NASDAQ:TSLA) aims to sell 500,000 cars in the long-term. The company plans to launch the Model X by the end of this year. That will further boost demand for its cars. But that can’t help Tesla Motors Inc. (NASDAQ:TSLA) boost sales by 20 times. That’s possible only when the electric vehicle company launches a mass market car. Elon Musk has stated that Tesla Motors Inc. (NASDAQ:TSLA) plans to introduce a $35,000 electric car with above 200-mile range. The mass market car may be introduced as soon as 2016.
Mass market cars to affect Tesla’s margins
A big problem with the mass market car is that it will affect the company’s margins, because Tesla Motors Inc (NASDAQ:TSLA) can’t afford to produce a low-quality car. So, it will be difficult for Tesla Motors Inc (NASDAQ:TSLA) to achieve Porsche-like margins. Porsche has maintained a near 50% gross margin because its average selling price is still above $100,000. Moreover, if Tesla Motors Inc (NASDAQ:TSLA) grows as investors expect, it won’t enjoy the benefit of the $7,500 federal tax credit. That’s because the U.S. tax credit is phased out after an automaker produces $200,000 green cars.
Investors and interested parties everywhere are keenly waiting to see how the company boosts its sales on expected lines without hurting gross margins. Tesla Motors Inc (NASDAQ:TSLA) shares jumped 0.33% to $150.59 in pre-market trading Friday.