Is Tesla Motors Inc (TSLA) Too Optimistic?

Lux Research Analyst Dean Frankel said on Bloomberg TV that Tesla Motors Inc (NASDAQ:TSLA) might be too optimistic about their Gigafactory prospects. The figures brought to public by Tesla Motors Inc (NASDAQ:TSLA) for the factory are: 35 Gwh/year in Cell Output by 2020 and 50 Gwh/year on Pack Output by 2020. The predictions regarding vehicles’ volume of production are in the range of 500,000 annually by 2020, a very brave assumption according to many analysts.

Tesla Motors Inc (NASDAQ:TSLA)

This project comes as a result of a partnership with Panasonic and it will be constructed in Nevada, which was considered easily further away in the bid against Arizona, California, New Mexico and Texas.

“I don’t necessarily think we’re totally down with the Gigafactory, but when you look at what the estimates will be for electric vehicle sales, they project around 500,000 vehicles in year 2020. We think that in the likely case there will be around 240,000 vehicles. […] So, about half their capacity,” claimed Dean Frankel.

The skepticism was based on the facts that Tesla Motors Inc (NASDAQ:TSLA)’s most demanded car will be their Model 3, which will sell at about $35,000 – $40,000 and will have to compete with Audi A4, Mercedes C-Class and BMW 3 series. Consequently, the electric vehicle will have to be disruptive to models that have been firmly rooted into the market, each of these models have sales of about 400,000 units per year. It is also believed that the entire market for electric cars will be of about 440,000 pieces, meaning that Tesla Motors Inc (NASDAQ:TSLA) will have to practically establish a monopoly.

The Gigafactory need not necessarily power only cars, it might also slide into stationary storage for houses and businesses. However, according to Mr. Frankel, the residential market size will not be large enough to require such a big amount of energy resources. To draw a comparison, Tesla Motors Inc (NASDAQ:TSLA)’s current shipment is of 3 Gwh/year, and to reach its prediction, of 35 Gwh/year, it will face serious obstacles, not in terms of possibilities, but of demand. Also, none of the company’s major competitors require batteries of the same properties as those provided by Tesla Motors Inc (NASDAQ:TSLA), but things might change in the future.

Disclosure: none

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