Three Risks In Evaluating Tesla Motors As An Investment

Teris Team offers caveats on its investment evaluation of Tesla Motors.

Published: 22-Aug-2012

Tesla Motors recently launched the Model S and has begun delivering the vehicles to customers. The classy sedan has received very positive reviews, and has racked up over 12,200 reservations to date. The company has high hopes for the car, but has a lot of work to do before it can achieve its goal of establishing itself as a large scale electric vehicle manufacturer. We currently have a Trefis price estimate of $41 for Tesla and below we highlight three broad risks to our views on Tesla:

1. Production Ramp Up Process May Not Be a Smooth Ride

The company has set a target of producing 5,000 units of the Model S this year and at least 20,000 units annually from 2013 onwards. This seems like a formidable task, considering that they were producing only around 10 units a week in the previous quarter. Management recently outlined its plan to ramp up production in the Q2 earnings conference call. The ramp up would trace an S-shaped curve, with a gradual increase initially (around 40 cars a week in Q3), followed by a steep increase to around 375 cars a week in Q4.

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