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Don’t Be Starstruck By Tesla Motors Inc (TSLA), It Might Prove To Be A Letdown

The main driving force behind Tesla Motors Inc (NASDAQ:TSLA) is its ambitious CEO, Elon Musk, who is a visionary in many senses. However, sometimes ambitiousness leads to over optimism. In an article on The Globe And Mail, Jeremy Cato expressed his concerns for the overambitious targets that Tesla has set for itself.

Elon Musk

The most significant target in this regard is the production target. Tesla Motors Inc (NASDAQ:TSLA) is aiming to sell an astounding 500,000 vehicles per year by 2020, according to Cato. This will of course be backed by the Gigafactory, Tesla’s battery plant, which is still at a dusting stage more or else, as far as its construction is concerned.

Can Tesla Motors Inc (NASDAQ:TSLA) really hit that target? To gain an insight into this question it might be beneficial to have a look at the electric car’s current production rate. Cato mentioned that currently, the company’s goal for the end of 2014 is 1,000 cars a week, according to a shareholder letter.

There are two issues which hang like ominous dark clouds on Tesla Motors Inc (NASDAQ:TSLA)’s figure for the 2020 production. Firstly, a major part of this figure will be played by Tesla’s third model, which has not really been showcased as of yet. Granted that Elon Musk is a man thinking about colonising Mars, and I will not dare to say that he cannot, but business and finance can be a bit tricky, and I am sure Musk would agree with me on that in light of his recent D-Surprise publicity stunt gone wrong.

This brings us to our second reason, namely Tesla Motors Inc (NASDAQ:TSLA)’s handsomely priced vehicles. Now Tesla is not exactly your reasonably priced electric car, it’s in fact a luxury commodity. For such products, increased profits don’t lie in higher volumes, but better margins than other products in the market.

In fact Cato also quoted Dean Frankel of Lux Research claiming that the best case scenario for Tesla for 2020 will be 240,000 vehicles, a year with the global market standing at 400,000 electric vehicles per year.

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