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Tesla Stock Analysis

1424 words - 6 pages

MEMORANDUM

Company Background

Tesla Motors, Inc. was founded in 2003 by South African entrepreneur Elon Musk, and is based in Palo Alto, California. The company designs, manufactures, and sells electric cars, and is known for introducing the first fully electric sports car, the Tesla Roadster, in 2008. It was priced at $109,000 and could travel more than 200 miles per charge, twice as far as its competition. Tesla stopped producing the Roadster in 2011 as its contract with the key supplier expired, and launched the Model S in June 2012. The car ranges from $50,000 to $100,000 and can travel as far as 300 miles, depending on battery-size as well as the driver’s average speed.
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The Model S was named “2013 Automobile of the Year” by Automobile Magazine, and editor Christopher Nelson notes, “Driving the Model S is decidedly not like piloting a Nissan Leaf or an electric Smart.” Contributor Ezra Dyer, meanwhile, was so impressed that he arranged an informal drag race to 100 mph with a 560-hp BMW M5. The Model S won. “It bears repeating: this thing is silly quick,” he concluded. On May 9th, Consumer Reports gave the Model S a rating of 99 out of 100, the highest score in six years and only matched once before by the Lexus LS600 (P.E.).

Business Trend and Financial Information

Tesla has been publicly traded on the Nasdaq stock exchange since July 2010 with an initial stock price at $19.2/share. Due to difficulties in gaining momentum, the electric car industry has been suffering in the last few years but the ever so optimistic Elon Musk has remained confident that Tesla would eventually turn a profit. In the third quarter of 2012, Tesla’s production increased from five cars per week to 200 cars per week, and there were over 12,000 orders of the Model S at the end of the year. However, this didn’t convince the critics and in March 2013, short sellers held 42% of the stocks (P.E.).

Unfortunately for those investors, Tesla suddenly began to line up positive announcements:

* 13,000 customers had ordered and paid $5,000 deposits for the Model S by early March.
* Consumer Reports rated the Model S 99/100.
* Tesla reported its first-ever quarterly profit of $11.2 million in early May.
* The company repaid its U.S. government’s ATVM loan of $452 million later that month, nine years early, and the first car company to do so since 1920.
* Musk recently signaled a new estimate of 21,000 produced cars in 2013, up from 20,000.
(Jones)

Because of these announcements, the stock skyrocketed from $38 in late March to $110 on May 28. It has been trading around $95 in the last week. Furthermore, new options became available on June 6th for the June 14th expiration; one call contract with a strike price at $97, and one put contract with a strike price at $95 (Jones).

*Images adapted from Forbes.com

People and Planet

Elon Musk is unquestionably a big part of Tesla Motors’ success. He was born in 1971 and has since 1995 started four successful companies: Zip2, PayPal, SpaceX, and Tesla Motors. He is Chairman, CEO, and Product Architect at Tesla, and his experience and expertise in software engineering have largely contributed to the development in the electric car industry. While his competitors are falling like dominos, Tesla could report its first quarterly profit and watch its stock more than double in less than 3 months. Why is Tesla being successful in an industry so clearly difficult to succeed in? I argue that it’s because of Musk’s determination to deliver a flawless product, no matter how...

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