TSLA Stock: Tesla Motors Inc's Bold Strategy To Drive The Stock Higher

  • Tesla Motors Inc posted a surprise $22 million profit in the third quarter, beating analyst expectations by a wide margin.
  • The company announced record delivery and production numbers of its top of the line electric cars.
  • More importantly, Tesla's future strategy is likely to ensure that this is not a one-off success.

Tesla Motors Inc (NASDAQ:TSLA) posted its second profitable quarter ever and beat analyst expectations for the third quarter by a wide margin. Tesla cited new product launches, increased store efficiency, and new store openings as driving factors for the positive third-quarter results, adding that the recent improvements to its self-driving hardware, position it for additional market share gains. Here's why Tesla looks set for a good run.

"The Tesla third quarter results reflect strong company-wide execution in many areas," reads the Tesla Third Quarter 2016 Update. "Furthermore, we expect this to continue into Q4 and project positive GAAP [Generally Accepted Accounting Principles] net income (excluding non-cash stock-based compensation) despite ZEV [Zero Emission Vehicle] credit sales in Q4 likely being negligible. We set new records for vehicle production, deliveries and revenue, which led to GAAP profitability and positive free cash flow (cash flows from operations less capital expenditures). At the same time, GAAP total automotive gross margin and gross profit per car increased substantially."

In an announcement earlier this month, which exceeded the expectations of industry analysts, Tesla CEO Elon Musk revealed that all new Tesla cars will be equipped with new "Hardware 2" and new software, gradually introduced over time, which will eventually enable the cars to drive themselves, Amigobulls reported. The company plans to self-drive a fully autonomous car from Los Angeles to New York in a demonstration by the end of next year, and deliver self-driving cars to consumers ahead of the competition.

Also Read : SolarCity Corp (SCTY) Merger Will Continue To Drag Tesla Motors Inc (TSLA) Stock

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 company is advancing incrementally, step-by-step, towards fully autonomous cars, expected to be the next big thing.

But the current earnings come from Tesla's traditional product line: top class electric cars. The company announced record delivery and production numbers, beating the second-quarter delivery and production numbers by 70 percent and 37 percent respectively, and it predicts 50,000 new vehicle deliveries for the rest of the year, with a fourth-quarter plan of just over 25,000 deliveries. In the third quarter, Model S and Model X orders were up 68 percent from last year's third quarter. Tesla produced 25,185 vehicles in the third quarter, 37 percent up from the second quarter, and 92 percent up from last year's third quarter.

The new business and product lines that Tesla is envisaging - self-driving cars and clean energy storage - have not had the time to contribute to the company's earnings. If anything, the new Tesla ventures still carry a loss, as it's usually the case for new ambitious initiatives. But Tesla is re-affirming its commitment to the new initiatives, because that's where the future profits will come from.

Also Read : Competition Subsides For Tesla As Apple Scales Down Project Titan

Tesla notes that it is providing the largest lithium-ion battery storage facility in the world to Southern California Edison, recently covered by Amigobulls, with an impressive delivery time of less than four months, enabled by the fast production capacity of the Tesla Gigafactory.

"Our energy storage products are gaining increased market acceptance, firmly establishing Tesla as a leader in energy storage solutions, and surpassing our competitors in the breadth and scope of our offerings across residential, commercial, and utility-scale storage markets," claims Tesla. "At the same time, we continue to lay the foundation for future growth. [Our] efforts to transform the solar industry will be demonstrated at our joint product introduction with SolarCity on October 28th."

At the event, Tesla CEO Elon Musk outlined his vision for how the merger of the two companies - Tesla and SolarCity - would result in an integrated system of solar panels, wall-mounted batteries and electric cars. "People always think of Tesla as an electric-car company, but really the whole point of Tesla was to accelerate the advent of sustainable energy," said Musk, as reported by The Wall Street Journal. Musk's goal is "to make solar roofs that look better than a normal roof, generate electricity, last longer, have better insulation and an installation cost that is less than a normal roof plus the cost of electricity."

"With the previously announced plan to acquire SolarCity, we look forward to making solar as compelling as electric vehicles," notes Tesla. "Acquiring SolarCity would leverage Tesla's existing investments in the Gigafactory and the next-generation Powerwall and Powerpack to drive revenue growth."

The last quarterly results show that Tesla is taking good care of its current business, and producing shareholder value. Investors should trust Musk's and Tesla's management abilities to successfully build the company's future business as well.

Interested In Auto Stocks? Check Out Our Top Auto Stock Picks

Giulio Prisco Giulio Prisco   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and TSLA stock

Very happy about that news, I have been very sad watching tsla go down along with my investment in tsla the last several days, let's keep up the good news, tsla lives off of that good news.
user profile picture
charlie gilreath
Here is the truth about TSLA. Tesla has serious issues with the facts about Solar. Solar tiles have been around for a long time. They are not efficient and they are expensive not just to produce but worse to install. GE develop an equally beautiful tile over 6 years ago. The problem is efficiency – tiles are not nearly as efficient as panels. Musk’s claim that tiles are only 2% less efficient than other panels is like me saying my car is only 2% less effect than other autos. What I don’t tell you is my auto is a 1996 Suburban and I am comparing it to a Hummer. So in other words 2% less efficient than what thin film (now you are really in trouble if that is the cases )and Solar City has a history of trying to sell thin film. 2% less than Sun Power – that is not true either. Panels vary in efficiency and while they are increasing in efficiency each year they are still not cost effective compared to the cost of energy . Hence we require subsidies in all but a handful of markets.

Today there was talk of a rate hike do you know the razor fine returns that Solar City works on in its lease scheme. Even in their "systems sales" approach financing cost are already tough to justify as even after ITC and MACRS ( depreciation ) they are often not more cost effective than local residential solar. A rate increase will have a significant effect on the cost of solar because of the large upfront cost you have to finance over 20 years. With tiles that upfront cost goes up not just due to the more expensive less efficient tile. The real problem is installed cost. Boots on roofs is the killer of residential solar economics.

Panel efficiency is only one factor – you need to know the installed cost and the system output this is the math that tells the value of a system to a consumer. Is the cost less than the cost of local energy rates. You cannot deliver this new system for 11c pr Watt. I am willing to bet you can’t deliver it for 15c maybe not even 17c a watt. Not only are panels still not efficient but as previously noted the second biggest cost factor in solar is installation. You may recall a company called Akena ( the early leader in Solar ) first public Solar company. It claimed price reductions and therefore greater value because of the efficient racking system they developed to speed up installs and thereby reduce cost. They went bankrupt. Panels are just now getting cheaper to install. Tiles are very expensive to install. You are not just nailing a clay tile down. These tiles and what we call the BOS and Installed cost further make the value proposition invalid – not just now or next year but for years to come. Then you have to add to this the fact that most homes are not designed to have roofs that face the sun in the optimal manner. While Panels can be set to a tilt and orientation that works ( this often makes them less attractive) you lose further production by simply following the roof natural tilt and orientation. Installers disqualify a lot of homes to orientation and shading issue. In short anyone who knows anything about consumer solar knows that while Musk does a great job selling the dream - for those who invest in this stuff you need to know look at the economics of solar – they are not good - if not for Musk SC would have been BK like all other installers. If you take all these factors into account on your own home - call get a quote and look at the install cost and the output the economics you will see in California they are marginal with panels - wont work with tiles for a very long time and now for the rest of the nation with less radiation it gets much worse. But I fear you believe anything Musk says.

Musk needs cash now to achieve his plans. He is a visionary. However, it is clear he is not afraid to sell his future today – not matter how flawed to secure his future vision. For investor this is more likely to end like DeLorean than Amazon. You must remember Amazon had the benefit of economies of scale – they don’t exist in solar particularly residential solar. More importantly Amazon never competed against an essential commodity price – the price of electricity. Technology usually reduces cost. With solar and in Musk’s world technology never offers any cost savings. It is implied but in fact never delivered – it all requires subsidies to save the consumer money. In short Musk is arguing consumers should pay a higher price for the energy his technology produces because it is cool and green.

Finally the biggest joke is the number of fronts he fights on at any given moment. Wow what happened to the analyst concerns about a lack of focus. Look closely at the storage industry. That is a whole different game. The amount of people going into storage is amazing. China is making the same commitment to storage it made to solar panels and look what they did to those prices. Samsung, GE and a host of well-funded companies are going into the space. Storage in electricity will be like storage in tech – a commodity and you don’t want to bet on any one technology. Yet he is building a massive plant built on technology that is already old.

Musk is one of the great icons of our time – but to those who work in the industries he is trying to lead – it is clear he is misleading people. Few call him on it because most in the professional realm don’t have the public persona he does. But just think for a moment. BMW – Mercedes, Toyota not to mention Ford and GM are all going to defend their markets and they have cash – R&D budgets and retail networks. Tesla will spend a decade financing and building their service and dealer network before they will be profitable. Tesla now says they are going to beat all the leading auto companies, panel manufactures and those large industrial players going into storage. The panel manufactures are already going broke because it is a race to the bottom. But don’t think for a moment Sunpower, GE, GAF and a whole host Chinese companies are not ready to do this when the market makes sense. The truth is the installed price of tiles does not pencil out.

If you want to get into the real details you should. When you see $230 average expected share price – even $188 from Goldman you have to ask on what math. Based on a proto type of a product that 3M, Dow and GE all have developed. What sales expectations and most importantly in what competitive environment. This guy is going in 4 directions at once – losing money and in need of future cash. Not one of the companies he challenges is a push over – most have the cheapest cost of cash, they each have big brands and big brains and they are happy to let what they probably see as a useful idiot take all the arrows in the back and define the path they can later pick up and profit from.

Think about what Samsung did to Texas Instruments with DRAM.

I like Elon Musk as an Icon. But I would short his companies if I thought analyst could realize the numbers. Now I am happy to hear from anyone who knows the economics of solar. We have financed solar for over a decade - but if you are going to respond by repeating Musk on batting averages - recall he has missed more Qs than he has made and it is easy to build things with subsidies - the real world his competitors do it without a safety net and those are the people he has to beat.
1 reply
Do share this awesome post