A Tesla Motors Inc (TSLA) Roadster By A Different Name

Real threats to Tesla

So far, Tesla has been able to be remarkably successful. It produced 2,500 units of an amazing supercar, is currently producing 500 Model S sedans per week, and expects to report a Q1 2013 profit on both a GAAP and non-GAAP basis. But Tesla is still a speculative investment. A major recall, breakdown in production, or decreased demand for the Model S could pose a threat to Tesla’s future. With Detroit Electric still producing the SP:01, Tesla’s biggest threats are product, production, and demand based. While success for Detroit Electric could make the company a competitor to Tesla, this will not happen for at least a few years as Detroit Electric would have to tool up and produce a mass market car. In the time in between, much of Tesla’s fate will be decided. We will see how many Model S sedans Tesla can produce, how many it can sell, and the progression of the Model X and Gen III vehicles. By the time Detroit Electric plans to be producing their mass market car, Tesla will likely be much stronger and equipped to handle competition from other start-ups.

Tesla and the EV market

Right now, the percentage of car sales as electric is tiny compared to the vast majority of gas car sales. To make a profit, Tesla Motors Inc (NASDAQ:TSLA) will have to change this and is already doing so by delivering around 5,000 Model S sedans after its limited Roadster production. What the company has done so far is a drop in the bucket compared to the millions of cars sold each year leaving much room for growth. If Detroit Electric can succeed, it will be just another competitor in this giant market. And if Tesla is successful in 2014 (when Detroit Electric hopes to go mass market), it will be an indicator that there is plentiful room for electric cars, both from start-ups and established players.