Tesla’s CEO, Elon Musk, has a very clear three-step process for success in this business:
- Sell a few expensive vehicles.
- Sell more vehicles that are cheaper in price.
- Sell a lot of vehicles that nearly everyone can afford.
Tesla has just entered the second stage with the release of their Model S, which obviously did very well in Q1.
Tesla doesn’t expect its momentum to stop. In fact, its outlook for Q2 states, “We expect to be roughly break even on cash flow from operations in Q2, despite launch costs in Europe and a huge increase in service centers, stores, and Supercharger stations.”
Tesla is not only expanding in its number of cars but also its model of vehicles. The Model X will hold seven passengers, have storage room, and essentially combine the convenience of a minivan with features of an electric car. It also features gullwing doors, as seen in the picture below.
Tesla’s models won’t stop there, but will continue to grow for years to come. In fact, the company plans to release cheaper models as time goes on. By 2016, the company plans to have several models of electric vehicles on the market for as little as $30,000-$40,000.
Electric vehicles seem to be riding a wave of success, and Tesla is fully engulfed in it. The problem for other manufacturers like GM and Ford is this: Despite electric cars picking up steam, they simply don’t represent a large percentage of overall sales for these companies.
Tesla may not be as expensive as one may think, despite its astronomical growth.
Valuation
Tesla is arguably the only publicly traded company that relies on EV sales, is financially stable, and has growth priced into the stock. Ford’s stock is priced at 0.5 times sales. Tesla’s stock is priced at 15 times sales, meaning opportunity has already been priced in.
Ford and GM have had decades to become established, and they still owe the government money. Tesla was founded in 2003 and has just recently gained momentum. For a company this young, investors should not just look at typical metrics for valuation. It is important to also look at capital expenditures, since they helps investors know how much money the company spent on future growth. Tesla has seen capital expenditures increase 2,420% in the past five years.
Between paying off its debt, the phenomenal growth/growth potential, and its opportunity already being priced into the stock, I have drawn my conclusion.
The bottom line
Electric cars are here to stay, and Tesla is planning on releasing several new models in the near future. The opportunity is still mind-blowing for investors looking for loan-free companies with buckets of growth potential. What are your thoughts on Tesla?
The article Despite Its Recent Growth, Tesla Is Still Investable originally appeared on Fool.com and is written by Tyler Wofford.
Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Tyler is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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