Barclays On Tesla Motors Inc (TSLA) European Expansion

Tesla stockBlomst / Pixabay

Barclays Equity Research analysts Brian A. Johnson, Dan Levy and Steven Hempel maintain an Equal Weight rating for Tesla Motors Inc (TSLA) as they consider its expansion into Europe.

Positive business momentum, but margins keep us EW

Over the last three days we hosted Jeff Evanson, VP, Investor Relations at Tesla Motors Inc (TSLA), for meetings with investors across seven cities in Europe. Given the momentum in the stock, demand was extremely robust, with some meetings getting upwards of 40 investors. The meetings provided us with better appreciation of the ongoing momentum at Tesla – revenue growth will be driven by the international rollout, and battery costs are coming down, which at some point may make the Gen III vehicle a viable option for consumers. However, we reiterate our EW rating as the path to margin expansion will be gradual – although Tesla believes it can ultimately generate mid-teen op. margins, investors should expect closer to low mid single digit margins as Tesla invests in its growth. Moreover, we already give Tesla the benefit of the doubt in valuation on many fronts, and we see the grid storage opportunity as only a 20-25% boost to valuation, not the doubling that some expect.

Battery costs to come down, powertrain cost ultimately in parity with other OEMs

According to Tesla Motors Inc (TSLA), battery costs are currently $200-300/kWh, and are expected to decline 5-10% annually through 2016, with a 30% reduction in 2017 once the gigafactory is ramped. Assuming a $275 cost in 2013 and 5% reductions, this would imply a cost of ~$165/kWh by 2017. Although we had previously assumed Tesla’s powertrain cost to be higher than other mass-luxury OEMs even when considering a 30% cost reduction, Tesla believes that battery cost of $100-150/kWh is the point where total powertrain cost could be equal to or lower than luxury ICE OEMs when taking into account that Tesla spends less on energy conversion (i.e., motors, gears).

Tesla’s China demand promising, but challenges in Germany

Although upside exists for Tesla Motors Inc (TSLA) in China, we sensed skepticism from investors around growth prospects in Germany, Europe’s largest luxury market, given predisposition toward German cars. Moreover, today’s announced price cut may be a sign of stalled demand in Germany.

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6 Comments on "Barclays On Tesla Motors Inc (TSLA) European Expansion"

  1. geoffrey bailey | Oct 7, 2014, 2:24 am at 2:24 am |

    According to the quarterly reports and open orders.

  2. “Tesla is selling every car it can make, without advertising.”
    According to whom?

    (btw the California numbers are indeed a trend)

  3. The explanation given for the price drop in Europe is the value of US Dollar has recently dropped more in comparison to the Euro. Tesla wants to give the Europeans the same deal as people in the US. Today’s exchange rate is 1 Euro = $1.39.

  4. geoffrey bailey | Mar 9, 2014, 8:16 pm at 8:16 pm |

    Vox: It’s way too early to call this a trend. Tesla is selling every car it can make, without advertising.

  5. Doesn’t that mean then that Tesla was formerly giving Germany an unfair deal?
    The reality is that if you look at European Tesla sales in toto, they are noticeably down. U.S. sales growth appears stalled as well.

  6. geoffrey bailey | Mar 9, 2014, 12:27 pm at 12:27 pm |

    “today’s announced price cut may be a sign of stalled demand in Germany.” Or maybe after giving the same deal to the Chinese as people in the US, Tesla wants Germans to feel like they are getting a fair deal.

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