Buy Tesla Today!

Why Buy Tesla Today?

Dr. Thomas K. Carr

Founder, and IXTHYS (coming soon)

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Last night Tesla Motors (Nasdaq: TSLA) posted earnings that beat street estimates on both the top and bottom lines and delivery numbers that met most expectations. But the company's founder, Elon Musk, cautiously suggested that the prior projection for a delivery of 55,000 unites by the end of 2015 was a bit too optimistic; that it would more likely be in the range of 50,000 to 55,000. Okay, not a huge downgrade, but it was enough to concern investors and this morning is going to force the stock to open about 7% below yesterday's strong close.

I consider this to be a nice buying opportunity. I'm adding to shares (I've been long Tesla since April 1), and here's why: the real story for Tesla is not 2015. It's 2016 to 2017 and beyond.

Here are the material points to consider:

  • Long-thought a car only for the wealthy (the higher end Model S retails at over $100,000), Musk recently revealed a less expensive Model S which starts at $70,000, or only $50,000 with incentives. And more importantly, Tesla is now in production to bring out a “Tesla for the people,” much as Henry Ford did with his Model T. The Model 3 Tesla will have a base price of $35,000 and is set to launch in 2017.

  • Before then, Tesla is set to come out with a its Model X, which combines the space and functionality of an SUV with the performance of a Tesla. We should be seeing these hit the market in late-2015. Tesla is building a massive production plan in anticipation of this rollout. With its wing-doors and 7-seat capacity, this should be a very popular replacement car for all the worn-out minivans.

  • Speaking of performance, Tesla has cornered the market on EV speed. The Model S has an “insane” mode speed which can take you from 0 to 60 in only 3.1 seconds. That’s performance you can’t find in any conventional sedan. Just recently, Musk announced a new “ludicrous” mode of speed which will get you to 60 in only 2.8 seconds. Current owners can upgrade to the higher mode for $5,000 plus labor, creating a new revenue stream for the company.

  • Tesla is also improving the range of its cars. Its strongest battery option has a range of 300 miles per charge at 65 mph. Long the complaint of EV’s, this now pushes the EV range to something near what most gas-powered sedans average on a tanks of gas.

  • Tesla has begun production of a battery-powered generator for homes. Investors love the idea and have bid up shares of TSLA over 40% from its March, 2015, lows. The generator ties in to Musk’s Solar City operation in that the battery stores power from the solar panels not used by the home, and which can be tapped into on cloudy days or at night. But as Musk made clear in last night's conference call, the home generator is not just for solar. Any home can use it to normalize electricity usage throughout the day and thus cause less drain on the grid.

  • Musk recently announced a new marketing plan which would pay Tesla owners who get friends to buy a Tesla. The incentives are so generous that it is possible to purchase a fully loaded Model X for its base-level price – a savings of $25,000 – with only 10 referrals. Musk estimates that this program will save the company $2,000 per car in marketing costs.

  • Tesla is also unique in that it doesn’t sell its cars through the traditional dealership model which increases costs through so many businessmen and managers who take their cut. The car is mostly sold online and the price is fixed by the consumer depending on which options are chosen. There is no haggling with salesman.

  • The market in China has been problematic for Tesla to break into but according to a recent analysis from Robert Baird, this is beginning to turn in Tesla’s favor. Once Tesla is out with the more affordable Model 3, it should see its China operations really pick up.

  • Tesla has trumped the EV market by offering 487 Supercharger sites throughout the nation where Tesla owners can charge their cars, in superspeed, for free. Plans are in place to double this number by the end of 2016.

  • What happens when a Tesla breaks down or needs a new taillight? You’ll have to take it to a certified Tesla dealer, which used to be few and far between. But they are now found in almost every corner of the U.S. and the number is growing. And the Tesla owned repair shops are non-profit enterprises. They are designed to keep owners happy, not make money.

  • Congress has passed legislation dictating that auto makers manage to get at least 55 miles per gallon out of their vehicles by the year 2045. This has the industry scrambling to add fuel efficiency which, in turn is cutting way back on performance. This makes the Tesla an ideal sell: you get infinite miles per gallon and “ludicrous” performance in the same package!

Musk has the stated goal of selling 500,000 units by 2020. That seems too optimistic now, but consider that 5 years ago the company could only produce 120 units a year. They now turn out that number in 3 days. If that trend continues, and if Musk continues to bring out new chassis models -- a Tesla truck? convertible? taxi? -- and with rumors flying that Tesla will partner with MobilEye to build a fleet of self-driving Ubers, anything is possible.

Dr. Thomas K. Carr

Posted to Dr. Stoxx Options Letter on Aug 06, 2015 — 9:08 AM
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