Tesla Motors Inc (TSLA) Goes All-In With Gigafactory

Stifel analysts James J. Albertine and Lucy Webster take a close look at Tesla with a focus on the recent flurry of activity related to its gigafactory.

Tesla Motors Inc (TSLA) Goes All-In With Gigafactory

Gigafactory puts a lot on the plate

Tesla Motors Inc (NASDAQ:TSLA) announced formal plans to construct a $4-5 bn “Gigafactory” (of which TSLA plans to contribute $2 bn), expected to support production of roughly 500k units by 2020. TSLA plans to build the facility in three years and expects to hire 6,500 additional employees (we note 5,859 full-time employees at YE 2013). In conjunction, TSLA also announced a $1.6 bn convertible senior notes offering, the proceeds of which will be designated for Gigafactory construction, cost of convertible note hedge transactions, the development and production of a “Gen III” mass market vehicle, and for general corporate purposes.

Thoughts: Tesla Motors Inc (NASDAQ:TSLA) has a lot on its plate, and with limited transparency into management’s detailed long-term outlook it remains difficult to unravel what exactly is being discounted into the current stock price. We think the energy storage opportunity trumps the vehicle opportunity for three reasons: (1) fewer customers to convince and service, (2) less risk to the supply chain – can in-source virtually all battery pack production while vehicle assembly still requires significant external support, and (3) U.S. demand for a renewable energy solution alone may be enough to support a Giga-sized investment before addressing international opportunities. Relying on vehicle sales alone will require Tesla Motors Inc (NASDAQ:TSLA) to quickly build-out international assembly, distribution, and service, which carries significant ongoing costs and undue risks for a growing manufacturer, in our view. We will endeavor over time to enlist peers and industry consultants to assist in a deeper dive scenario analysis as it relates to Tesla Motors Inc (NASDAQ:TSLA)’s financial potential in the energy storage industry.

What does this mean for Tesla’s stock price?

Valuation Discussion: We assume Tesla Motors Inc (NASDAQ:TSLA) could achieve annual unit sales of 300k by 2020, or 60% of its stated goal, which would imply close to 1 mm Tesla Motors Inc (NASDAQ:TSLA) vehicles on roads globally by the end of the decade. We believe Tesla Motors Inc (NASDAQ:TSLA) could earn roughly $11.75 per share in 2020, which would imply a $133-$171 per share value today at 25x EPS discounted back at a 8-12%. Bear in mind U.S. luxury car sales recently peaked at 1.15 mm in 2006 with BMW accounting for 231k, Lexus 200k, and Mercedes-Benz 179k units, still implying a substantial Tesla Motors Inc (NASDAQ:TSLA) market share gain (roughly 50% of 2020 global Battery EV production per LMC Automotive estimates).

  • NumbutsInvestor

    So far there are no deaths attributed to Tesla cars. Yet GM has recently been in the news due to it’s negligence which cost the lives of 13 poor souls. Since you seem to be smarter than most of us, do you care to elaborate Jim5437532? Just give up and stop posting (and cross posting) on other sites. Tesla is a good company and taking the necessary steps to ensure a safe driving experience for the valued consumer. I can’t say the same for GM and the like.

  • Ed

    Numbnuts, the safety ratings are based on ALL categories. In the real world, which you are not privy to, Tesla is proven to be the safest car ever made in the history of the world. You really are a Troll.

  • Steve Goldberg

    Tesla has had Zero deaths and look at how may deaths the other car companies have had.

  • MisterEman

    Jim5437 is well-known troll on Tesla sites. He copies and mass posts his drivel across Tesla forums & green energy sites to try to get reactions. Learned his craft doing prank phone calls in pre-callerID days. Still entertains himself making fart sounds. Don’t encourage him.

  • mftdious

    What a piece of work you are, Mr. Jim! Happy to have you building short interest after the recent run up! Keep pumping the fear, uncertainty, and doubt. ‘Tis the reason the valuation is so high. See you in quadruple digits in 2020.

  • Jim5437532

    The facts prove you are the “Numbnuts”. The safety ratings are based on very limited laboratory tests. In the real world the Tesla has proven to be more unsafe than other cars. How many other EV have had their traction battery catch fire after being in accidents or running over road debris?

  • Ed

    Numbnuts, all makes of cars have caught fire and exploded and have had recalls. Not all cars however, were rated as high as Tesla in all categories. You are really just posting crap.

  • Jim5437532

    Other cars are safer. The Tesla has a history of catching fire and exploding, that’s not safe. Tesla customers have been injured by their Tesla, that’s not safe. NHTSA and Tesla have issued a recall for almost all Tesla, for a fire hazard. Fire hazards are not safe. It’s crazy to call Tesla the safest car.

    If you’re willing to settle for Tesla, that’s your choice. My standards are much higher.

  • Ed

    Numbnuts, Tesla is the safest care ever made. Independent testing by the National Highway Traffic Safety Administration (NHTSA) has awarded the Tesla Model S a 5-star safety rating, not just overall, but in every subcategory without exception.

  • Gibs

    Jimmmmmmmyyyyy. Way to go man. Youre so smart. You should apply to Tesla so you can teach them about lithium ion batteries. How stupid could those engineers be to place the battery so close to the ground. They clearly haven’t thought anything through. You’d think they’d know a thing or two about safety since Elon has himself his own space company. This “car” company is clearly in need of a safety overhaul. Their cars are way too dangerous to be on the streets; their like bombs waiting to explode. Also, what makes them think they could even build enough cars? First off, they hardly have any demand for them (aside from all the California green millionaires), and second, their manufacturing facility is a dinosaur compared to the rest of the industry. And this gigafactory!? What a joke! Everyone knows you can’t run a facility on solar energy. Where would they even get the solar panels from LOL, it’s not like Elon has a solar company!! And plus, the sun barely makes any energy at all! I mean, it was freezing today!

    The electric motor isn’t even new technology!! And plus, electric cars can’t become mainstream because it costs more to produce electricity than it does to extract fuel from the ground. Just ask anyone filling up at the gas station. And global warming is a hoax made by the electric car lobby to sway consumers from the safer gasoline engine. When will people realize that this company is clearly a giant bubble waiting to pop? They don’t produce a good product, their completely unsafe, their using old technology, and their taking all of the tax payers dollars to fund their so called “green revolution” when in reality Elon musk is taking all of our money, and plotting to build a spaceship so he can escape to Mars. We’re truly the suckers here. When will people wake up and smell the coffee?

  • Jim5437532

    You are wrong and a liar. You are an angry moronic troll. You hate mongers can’t handle the truth. lol

  • Jim5437532

    Spelling police epic fail. lol You don’t know how to spell and you don’t know English.

    Why are you Tesla shills such imbeciles? You act like drug addicts, alcoholics, neurosyphilis cases, etc.

    Ignorant Tesla fan boys like you are shilling for a greedy corporation like Tesla, that skips on safety and manufactures overpriced defective products

    You shills are making up excuses for a greedy corporation like Tesla that skimps on safety and manufactures overpriced defective dangerous products; just because other manufacturers have had defects?

  • sandy222

    Clearly Jim is protecting his short position.

    “Lithium batteries are more likely to catch fire or and explode when punctured, then (sic) gasoline tanks.” is back to front … so no need to analyze further.

    And next time, use a spell checker and form cohesive sentences?

    Lagging behind? Thanks for the laugh of the month!

  • Sam

    Haha this person has so many mistakes and inaccuracies in their comment..

  • Jim5437532

    Tesla ought to better locate and better protect the traction batteries in their cars before they start mass production. Lithium batteries are more likely to catch fire or and explode when punctured, then gasoline tanks. Customers of Chevy Volts, Nissan Leafs, and Toyotas Rav4EV allegedly haven’t had any fires from road debris or vehicle accidents; yet Tesla has recently had three.

    Teslas are a fire and EXPLOSION hazard. Teslas are unsafe. Safety is not a top priority for Tesla.

    Three Tesla traction batteries have caught fire. Two Tesla traction batteries caught on fire after only running over road debris. One caught on fire & EXPLODED after an accident in Mexico.

    Recently there was a garage fire in Toronto. ALLEGEDLY the fire department said a Tesla model S. was the source. The traction battery & charger isn’t thought to be the cause. At this time the specific cause is unknown.

    A Tesla model S. charger connection is suspected in a garage fire in the Orange County California.

    Tesla model S. charge connections have been overheating, melting and burning for about a year possibly longer, yet Tesla has not resolve the problems. Since Tesla did not resolve the problems, people went to the media and government. With pressure from the media & NHTSA Tesla issued a recall for about 30,000 model S. to replace the adapters with a thermal fuse. The thermal fuse is an improvement, but there still seems to be an underlining fire hazard, since some of Tesla connectors don’t seem to be sufficient to carry the current for an extended time. Tesla issued a software update and touted it a “fix”. The “fix” did not work, charge connectors have continued to overheat, melt and burn. Though Tesla (Elon Musk) promised that the adapters would be mailed within two weeks, over a month later customers still have not received the replacement adapters with the thermal fuse. Almost all Teslas are under recall and are a fire hazard.

    I think Tesla Motors foolishly located the lithium traction battery too close to the ground without enough protection.

    Tesla Motors is lagging behind in technology. Tesla Motors is reactive instead of proactive.

    Tesla Motors and to a greater extent Tesla fan boys are hostile toward safety advocates, critics and skeptics. Tesla Motors and to a greater extent Tesla fan boys are bullies, slanderers and liars. Tesla Motors and to a greater extent Tesla fan boys resort to intimidation and censorship to suppress criticism, skepticism of the truth. Tesla fan boys are hatemongers. Tesla fan boys shill for Tesla Motors.

    Regretfully for the most part the media has been shilling for Tesla. The media needs to hold Tesla accountable. The media needs to scrutinize and investigate Tesla.

    Will Tesla Motors’s faulty designs result in deaths before people wake up and smell the coffee?