Tesla Motors Inc (NASDAQ:TSLA) announced a few days ago that the sales of its Model S vehicle exceeded the target provided in the mid-February shareholder letter. Vehicle deliveries were 4,750 units, exceeding the prior outlook of 4,500 units. As a result, Tesla is amending its Q1 guidance to full profitability, both GAAP and non-GAAP.
Tesla is optimistic about achieving gross margin of 25% by the end of 2013. If that happens, Tesla Motors Inc (NASDAQ:TSLA)’s stock should see a decent upside. This article will focus on Tesla’s long-term growth drivers and competition from hybrid car manufacturers.
Tesla’s long-term growth drivers
Tesla manufactures battery operated electric cars, which are expensive and yet to become mainstream. But Tesla Motors Inc (NASDAQ:TSLA)’s prospect is bright due to the following four factors:
1. Lithium-ion battery prices decreasing
Prices of automotive lithium-ion batteries have fallen about 15% every year for the past three years. A study by McKinsey & Company suggests that lithium-ion battery prices could drop another 25% by 2020, suggesting a compound annual price drop of roughly 4-5% going forward.
Tesla has achieved the intended production capacity of 400 units a week (~20,000 units annually). With battery prices falling, Tesla Motors Inc (NASDAQ:TSLA)’s production cost will decrease significantly over the medium to long-term. As a result, the company’s customer base will increase steadily. Gradually, Tesla will become the first company in the world to offer an electric car at an affordable price. Lower costs and higher sales will contribute to increased profitability.
2. Energy density for lithium-ion battery increasing
Tesla’s lithium-ion battery packs come with an energy density of 132 watt-hours per kilogram. Envia Systems recently announced that it developed an automotive-grade battery that can pack up to 400 watt-hours per kilogram, three times Tesla’s current battery capacity. Envia Systems is partially owned by General Motors Company (NYSE:GM), and General Motors Company (NYSE:GM) has the rights to use Envia’s systems.
Last October, California Lithium Battery announced that it had developed a lithium-ion battery technology with up to 525 watt-hours per kilogram of capacity, a fourfold increase over Tesla’s current batteries. California Lithium Battery believes that its technology will be in use within the next two or three years. Meanwhile, it’s not unreasonable to think that Tesla will acquire such a technology for the production of its own electric cars.
3. Charging station buildup increasing
There are currently over 14,000 public electric vehicle charging stations in the United States. By 2017, more than 1.5 million plug-in electric vehicles (PEVs) stations would have been installed along American roadways, with a total of 7.7 million locations worldwide.