Can A “Master Plan” Bring Tesla Back On Track?

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Tesla Motors (NYSE:TSLA) has experienced a series of reversals in recent weeks.  A Model S was involved in a fatal crashkilling the driver while on autopilot mode. A second accident of uncertain causes has yet to be investigated.  Finally there is the comapny’s controversial offer to acquire “Solar City”, a solar power company where Elon Musk is both the chairman and the largest shareholder. In the midst of this, the company’s CEO Elon Musk appears to be appeasing investors and consumers through a “top secret masterplan”, which he is plans to publish later this week.

While the company is ramping up its production to meet the heavy demand for its newly launched Model 3, its Q2 2016 deliveries were lower than anticipated. Concerns around Tesla’s abilities to meet the better-than-expected demand for Model 3 remain, though the company expects to produce and deliver 50,000 vehicles in the second half of 2016, equal to its total production in all of 2015. Elon Musk’s teaser of a “secret master plan” around two new affordable models to be launched soon can distract investors from the negative news Tesla is facing recently. However, ability to mass produce high demand low priced models is critical for Tesla’s valuation.

See our full analysis for Tesla Motors

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New Model Launches vs. Production Ramp Up

While Elon Musk’s Twitter post around the “secret master plan” hinted at a new Tesla model which is likely to be a sport crossover variant of Model 3, we believe the company’s immediate focus should be around ramping up its production of the Model 3. The company plans to produce nearly 200,000 Model 3 sedans by the second half of next year, which is an ambitious target given that the total production for 2015 was only 50,000 vehicles. (Read Here’s How Tesla Plans To Meet Its Model 3 Production Demand). Tesla faces several challenges including raising funds for the increased production capacity and ensuring availability of supplies and quality of production in its accelerated production plan. We believe the continued focus on an accelerated production plan is critical for Tesla. The Model 3 accounts for nearly 50% of Tesla’s valuation, according to our estimates and we expect that through continued demand, its market share will cross 20% by the end of our forecast period.

While new variants of Model 3 will enable the company to attract buyers, Tesla’s challenges are more on the production side and less on the demand side.  Elon Musk also appears to be working on a strategy to justify Tesla’s interest in Solar City to convince concerned investors about the benefits of this decision.  We believe a more focused mass production strategy, one that retains a focus on the quality of vehicles, should be the immediate concern of Tesla’s management. While a master plan around new launches can be a good distraction from recent negative news, it will not solve Tesla’s immediate woes

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