Tesla has had a historic week. It began last Wednesday when it reported its first quarterly profit ever. That was followed by Consumer Reports essentially calling it the best car ever when it gave it a score of 99/100.
The stock’s epic rally is continuing this afternoon. Management just announced that it would take advantage of its high stock price to raise capital.
Morgan Stanley auto analyst Adam Jonas has argued this week that the way the world perceives Tesla fundamentally changed.
“The Tesla debate has moved on from questions of viability to measuring the success and sustainable competitive advantage of the business,” he wrote.
Jonas raised his price target on Tesla to $103 from $47. In a note titled “Tesla Motors Inc America’s 4th Automaker: It’s Happening,” Jonas added that Detroit — home to Chrysler, Ford, and General Motors — and other auto hubs around the world must be watching the latest developments with some “astonishment” and “anxiety.”
In fact, Jonas says there are 4 key developments in Tesla that you everyone should know about:
- “CARBitrage: Tesla’s innovative capital raising funded by its competitors” – Tesla can raise funding by selling its zero emission vehicle (ZEV) credits and greenhouse gas credits (GHGs), which account for a significant portion of its cash flow, to other original equipment makers. “The regulatory credit funding strategy could reasonably pay for one full year of capex in 2013, possibly a significant portion of capex and R&D spend for the foreseeable future.” In fact, it could be enough to repay the Department of Energy’s loan in the next year 1 – 1.5 years.
- “The lease deal doesn’t just enlarge the addressable market, it multiplies it” – The dal with the Wells Fargo and US Bank to offer a 72-month loan with a guaranteed resale value have made the Model S much more attractive. Jonas now expects 21,000 Model S cars to be delivered in 2013, 26,235 in 2014, and 30,170 in 2015. He also expects Tesla to announce more hiring and expand Model S capacity.
- “High share price creates value and potential liquidity” – Investors might look for some new capital to offset unexpected risks and liquidity is expected to improve steadily.
- “Pound for pound the strongest brand in the auto industry” – Tesla is 0.01 the size of BMW, yet it has won the Motor Trend car of the year, and it got the highest score ever in Consumer Reports’ review.
Moreover, Tesla CEO Elon Musk has promised that the Gen 3 mass market car is coming.
Things weren’t always smooth sailing for Tesla.
The biggest problems for the electric car maker continue to be affordability and range limitations. Another Tesla specific problem, according to Business Insider reporter Alex Davies, is that unlike other automakers, Tesla has been developing only one model at a time. The concern was if that the company was always putting all of its eggs in one basket.
But Tesla has always had a top-down approach saying they would begin with the high-end market and eventually work their way down to cheaper mass market cars.
The Tesla story appears to just be in its early stages. The world will be watching closely. The company’s competitors will likely watch more closely than most.
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