How High Can Tesla Motors Inc (TSLA) Fly? Part One: Luxury Automaker

After blowing past the all-important $40 per share mark, many investors are wondering what the future holds for Silicon Valley’s automaker, Tesla Motors Inc (NASDAQ:TSLA). The announcement that drove Tesla shares was the beating of deliveries expectations with the number of Model S sedans delivered reaching 4,750 units versus the expected 4,500 units. This figure, combined with the announcement of profitability on both a GAAP and non-GAAP basis, helped to boost investor confidence in the future of Tesla Motors Inc (NASDAQ:TSLA). We all know that the automaker still faces major challenges, challenges that could force the developing company into bankruptcy if serious enough. But, while acknowledging the risks inherent in an investment in any start-up, we will take a look at what Tesla’s true potential could be should the company survive and grow as expected.

Tesla Motors Inc

Stage one: Luxury automaker

While the Tesla Model S is widely agreed to be a very well performing car, most also realize it is not for those with shallow pockets. Granted, many upper middle class people can afford this car by financing it and factoring in energy and maintenance savings, but the way Tesla Motors Inc (NASDAQ:TSLA) built the car clearly shows the automaker’s intent to compete in the luxury market.

Here, Tesla Motors Inc (NASDAQ:TSLA) will take on offerings by such companies as Volkswagen Group’s (NASDAQOTH:VLKAY.PK) Porsche, Daimler AG’s (NASDAQOTH:DDAIF.PK) Mercedes-Benz, and independent BMW. At this stage, these automakers do not see Tesla as much of a threat. Daimler has even signed agreements to source parts from Tesla Motors Inc (NASDAQ:TSLA) to build its own line of electric cars including an electric Smart Fortwo and the soon to launch electric version of the Mercedes B-Class. For a while, Daimler even owned about ten percent of Tesla but has since sold the majority of its Tesla stake to a Middle Eastern investment fund.

Unlike Tesla, Daimler is on solid financial ground as far as automakers go and has a track record of generating positive earnings. While Tesla is seen as a growth stock by its investors, Daimler is often used as an income stock for its solid dividend of 5.3 percent. Nonetheless, Tesla is going after Mercedes-Benz market share with its Model S, similar to the E-Class, and the upcoming Gen III sedan, similar to the C-Class. But Daimler remains content to let Tesla grow. Right now, Daimler is continuing to develop its own hybrid line while sourcing Tesla parts for its EV offerings. Additionally, Daimler, as well as Volkswagen and BMW, are developing diesel engines for use in passenger cars, both the United States and in Europe.

At Porsche, the company is building a line of gasoline-electric hybrid vehicles that includes the Cayenne SUV and the Panamera sports sedan. Tesla seems to have these two sports hybrids in its sights with the Model S competing with the Panamera and the Model X competing with the Cayenne. Comparing the stats of the Model S versus the Panamera, the Model S can clearly hold its own and even wins many categories when similarly priced trim levels are compared. For the Cayenne, it remains to be seen how the Model X stacks up against it in performance tests.