How Does The Model 3 Gross Margin Impact Its Stock Price
Tesla Motors (NASDAQ: TSLA) is set to launch its mass market electric vehicle in the second half of fiscal year 2017. According to our estimates, Tesla should get close to half of its valuation from the sales of the aforementioned vehicle. However, the auto industry has extremely high fixed costs and it is difficult to realize economies of scale without significant efforts on the production process. Consequently, changing the gross margin of an auto company can significantly enhance its valuation. The table below estimates the impact the gross margin realized on Tesla’s Model 3 vehicle can impact its stock price.
As one can see from the table above, reducing the expected gross margin on the Model 3 from 20% in 2017 to 10%, the stock price of the company could reduce by 61%. However, increasing the margin to 25% results in a 30% increase in the company’s stock price.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tesla Motors
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