Tesla Painted a Picture for Wall Street
Tesla sold the Giga Factory to Wall Street, raising two billion from convertible notes, helping to alleviate doubts about the company’s ability to become a major auto mass producer. The five ($800 million) and seven year ($1.2 billion) convertible notes pay meager coupons of .25% and 1.25% respectfully, which should raise few near-term financial concerns considering Tesla’s fantastic sales growth expectations. The stock (TSLA) hit a high of $265 on Wednesday, which came shortly after a bullish report ($320 price target) from Morgan Stanley Analyst Adam Jonas. TSLA closed at 244.81 per share today, down 3.06%.
CEO Elon Musk is the golden boy with the Midas touch. He knows how to paint a picture, and this last one had sustainable sugar plums dancing in Wall Street’s head, with solar, wind, and batteries galore. Mr. Musk also plays to win and to win big, holding a 27% stake in Tesla as of December 31 2013, which is greatly admired by most players, big and small.
Goldman Sachs keeps dragging along in TSLA’s rearview mirror, raising its price target to $170, but remaining skeptical about the stock’s valuation. Goldman is not alone in thinking Tesla’s 30 billion market capitalization is excessive, but most skeptics have been silenced due to Tesla’s excellent execution and business integrity.
Tesla Production Guesstimates
Tesla plans to be producing about 1,000 electric cars a week by the end of 2014 at its Fremont Factory, up from about 600 a week today. By 2020, the future Giga Factory is expected to produce enough batteries for 500,000 Tesla electric cars a year, which is the approximate capacity limit of the Fremont Factory. On the Q4 conference call, CEO Musk expressed his best guesses for future demand for the Model S and X, estimating about 1,000 a week for each, possibly more for the X, leaving the remaining capacity for the Gen III. For clarity, let’s round these figures to be 50,000 S, 50,000 X and 400,000 Gen III by 2020.
Gen III, The Major Road Ahead
As of December 31 2013, Tesla had only produced about 2,500 Roadsters and a little over 25,000 Model S cars. These are small numbers; however, Tesla has tremendous opportunities ahead within the two trillion dollar plus global new auto market (CEO Elon Musk stat. Q4 cc). The Gen III is the big act to come. If the Gen III lives up to expectations, Tesla will need more Giga, more Fremont Factory, more Supercharger, more everything Tesla.
Tesla has been studying charging strategies for apartment dwellers. On the Q4 cc, CEO Musk simply stated: “We are working pretty hard on that. We believe we’ve got some good solutions. We’re going to talk more about that in the coming months.”
Morgan Stanley sees Tesla also disrupting the electric utility business with stationary battery storage. Certainly, Tesla has an opportunity in this field, especially in home energy storage with its relationship with SolarCity, but it is still far too early to judge the long-term technological direction of this market. There are multiple battery designs and chemistries that may prove to be more economical as stationary storage but unsuitable within an electric vehicle. Regardless of the battery storage business, Tesla has plenty of lithium-ion battery demand for electric cars for years to come.
Tesla tweeted today: “Tesla Superchargers have charged over 10 MILLION miles to Model S. Enough to go to the Moon & back 20 times.”
The Oil Elephant in the Room
With peak oil a primary concern, President Obama and Vice President Biden spent time recently reviewing transit electric vehicles. Maybe, just maybe, they will entertain the Hyperloop idea.
West Texas Intermediate (WTI) oil closed the week at $102.59 per barrel. Brent is around $109. With Cushing oil inventories declining to normal levels, the spread between WTI and Brent should near parity.
The world has been locked into a doomed relationship with the oil market, being led by the dubious Saudi America, setting up the world economy for a hard fall. Saudi America is a fantasy state that ignores oil depletion, and it is crowding out normal economic development, wasting monies and time on energy projects that are archaic.
Tesla has the most sensible strategy to a sustainable world, aiming first at reducing gasoline demand.
Giga Factory Future
The future for electric cars, renewables and battery storage has never looked better, with particular thanks to Tesla CEO Elon Musk. Tesla plans to have the Giga Factory powered by wind and solar, with battery storage most likely as well. Panasonic is expected to be a major partner in the future factory, building upon its existing supplier relationship to Tesla today. Tesla CEO Musk expects there to be multiple partners due to the heavy capital costs to build the factory, estimated at 4-5 billion.
By 2020, the Giga Factory battery cell output is expected to be an incredible 35 GWh/yr, producing more battery cells than the entire 2013 worldwide market, according to Tesla Motors. In its first year of production (2017), the factory is expected to drop battery pack costs by more than 30% due in large part to economies to scale. It is in 2017 that Tesla plans to start ramping production of its much awaited and much needed Gen III car.
In a blog post, Tesla highlighted Texas, New Mexico, Arizona and Nevada as states in the running for the Giga Factory site, which would employ approximately 6,500 people. Unfortunately, California has been mysteriously missing from the Giga Factory location list, surprising many due to the obvious logistical benefits for Tesla. California Governor Jerry Brown announced yesterday that he will be running for re-election, which is great news for the environmental movement. Maybe Governor Brown still has time to talk Giga and Hyperloop too.
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