Tesla Stock: Latest Acquisition To Solve Production Issues For Tesla Motors Inc (NASDAQ:TSLA)

  • Tesla is acquiring Grohmann Engineering, a leader in highly automated manufacturing.
  • The deal paves the way for Tesla Advanced Automation Germany, which will boost the company's mass production capability.
  • Tesla CEO Elon Musk hinted at plans to establish Gigafactory 2, a large-scale car and battery production site in Europe.

Tesla (NASDAQ:TSLA) announced that it has entered into an agreement to acquire Grohmann Engineering, a German engineering company, which will become Tesla Grohmann Automation and pave the way for the Tesla Advanced Automation Germany headquarters, with other locations to follow. The company plans to add over 1,000 advanced engineering and skilled technician jobs in Germany over the next two years.

The Tesla news release describes Grohmann Engineering as a world-renowned engineering company and one of the world leaders in highly automated methods of manufacturing. The company, based in Prüm, Germany, develops, supplies, and services highly automated production systems and tools for the automotive, telecommunications, consumer electronics, and biotechnical industries.

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It appears that the production system engineering expertise of Grohmann Engineering is what pushed Tesla to acquire the company. "As the machine that builds the machine, our factories are so important that we believe they will ultimately deserve an order of magnitude more attention in engineering than what they produce," says Tesla. "At very high production volumes, the factory becomes more of a product than the product itself. After increasing our output target to 500,000 cars per year by 2018, we began searching for the best engineering talent in automated manufacturing systems."

The financial aspects of the deal have not been disclosed so far. While the agreement is contingent upon clearance from regulators, including in Germany, Tesla hopes to have full approval and close the acquisition in early 2017. Tesla agreed to buy a 74.9 percent stake from company's founder and majority owner Klaus Grohmann, and a further 25.1 percent stake belonging to private equity firm Deutsche Beteiligungs AG (DBAG), DBAG said in a statement reported by Reuters, adding that it expected to earn in the mid single-digit million euro range by selling its stake in Grohmann, and that Grohmann had revenues of 123 million euros ($136 million) in 2015.

Tesla is pivoting towards the clean energy sector, where it's trying to establish a leadership position in power storage and distribution networks, without abandoning the automotive sector. In fact, the automotive sector is largely responsible for recent positive financial results: Tesla posted a surprise $22 million profit in the third quarter, beating analyst expectations by a wide margin, and announced record delivery and production numbers of its top of the line electric cars.

Tesla made more money last quarter than the entire US oil industry made last year, notes Electrek in story with an admittedly sensationalized title, adding that the recent US elections results aren't likely to have a negative impact on Tesla. On the contrary, "it’s important for the upcoming new Trump administration and GOP-controlled Washington to start looking at Tesla and other upcoming cleantech ventures as important middle-class American job creators and sustainable businesses."

The move is clearly aimed at boosting Tesla's production capabilities by leveraging modern automation. "Under the continued leadership of Mr. Grohmann, several critical elements of Tesla’s automated manufacturing systems will be designed and produced in Prüm to help make our factories the most advanced in the world," notes the Tesla news release. "Combined with our California and Michigan engineering facilities, as well as other locations to follow, we believe the result will yield exponential improvements in the speed and quality of production, while substantially reducing the capital expenditures required per vehicle."

“We want to make Germany, essentially, a part of Tesla,” Tesla CEO Elon Musk said on a conference call, as reported by The Financial Times. “This represents a significant endorsement of German technology."

Also Read: Can Tesla Motors Inc Prosper Under Trump Administration?

Musk added that the immediate goals are to gain access to Germany's engineering talent and to develop mass-production capabilities for the Model 3, but hinted at plans to establish a large-scale car and battery production site in Europe, which he called Gigafactory 2. "We’ll try to figure out the right location for that in 2017," he said.

The take-away message for investors is that Tesla, while establishing and pursuing new strategies in the clean energy sector and new technologies for self-driving cars, isn't forgetting the top-class electric cars that made it a cult company. On the contrary, Tesla is boosting its smart production capability and is likely to remain a must-own tech stock.

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Giulio Prisco Giulio Prisco   on Amigobulls :
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Comments on this article and TSLA stock

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charlie gilreath
I love all he majic of maybes - how about the reality of the new investigation into Solar Subs Solar City has been claiming and Elon Musk Tax payer driven gravey train. http://dailysignal.com/2016/11/13/its-ti...

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charlie gilreath
Check out the article on Musk and Solar city and get your heads out of the sand. Jag has there car coming as do all the others - see link

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