3 Bold Bets for Tesla Motors, Inc. in 2015

By Markets Fool.com

Electric-car maker Tesla Motors has exploded onto the scene in the last several years. While the company is more than 11 years old, it wasn't until the launch of the Model S in 2012 that Musk and Co. became a force to be reckoned with in the auto industry. In this single year, Tesla went from producing several hundred of its smaller Roadsters per year to achieving an annualized production rate of 20,000 Model S's by year-end. And in 2014, the fast-growing company's enormous ambitions were solidified when it broke ground on its $5 billion Gigafactory, a factory purposed to build enough batteries to support production of 500,000 fully electric vehicles per year. Tesla may still be small when compared to its bigger auto peers, but its fast growth and big plans now make the company impossible to ignore.

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If you still have any doubt about the company's mind-boggling growth to date, just look at the sales growth of its Model S since launch.


Figures from SEC filings for quarters shown. Tesla's Q4 2014 vehicle sales are not available yet. Asterisk indicates management's quarterly guidance.

But how long can this wild growth go on? According to Tesla, this sort of growth will persist for years.

On this note, I'll lay out three bold predictions for Tesla in 2015. But first, here's a review of last year's predictions:

  1. Gross profit margin would reach 29% by year-end.
  2. Demand would continue to outstrip supply.
  3. Competition would show off fully electric competition.

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How did these predictions pan out? Gross profit margin did, indeed, improve significantly, but a forecast for 29% looks like it was slightly too optimistic. Demand continues to stay well ahead of supply even as Tesla continues to refuse to pay for any advertising. Fully electric competition wasn't unveiled in 2014, but General Motors did show off its new Bolt concept (with a planned 2017 launch) earlier this month.

On to 2015...

1. Model S sales will soar 50% this year.
In 2014, Tesla predicts it will deliver 33,000 vehicles, up about 46% from 2013 vehicle sales. This year, Tesla doesn't expect sales growth to slow. After seeing huge demand for its October-launched, new dual-motor versions of its Model S, Tesla has great confidence in the future growth trajectory of Model S sales.

"Based on net orders since that introduction, excluding the extraordinary initial demand peak, we are confident of a 50% increase in both net orders and deliveries for Model S alone in 2015," Tesla said in its most recent quarterly letter to shareholders.

Keep in mind that this sales growth isn't including any 2015 deliveries of Tesla's fully electric Model X SUV, which the company plans to launch this summer.

I believe Tesla's high ambitions for Model S sales this year are not only achievable, but possibly even conservative. After running into a production hiccup in 2014 that set the company 2,000 vehicles behind its initial guidance for 35,000 deliveries last year, I believe Tesla management doesn't intend on repeating the same mistake of over-guiding. Furthermore, Tesla typically sells more vehicles than management forecasts; not only did Tesla beat its initial 2013 guidance for 20,000 vehicles, delivering 22,500 instead, but it also typically exceeds its quarterly guidance, too.

Zooming out, Tesla's annual Model S sales could look something like this by the end of 2015.


Figures from SEC filings for years shown. Asterisk indicates forecasts based on comments from management.

2. The Model X launch will not be delayed again.
To those who haven't been following Tesla closely, predicting the Model X to not be delayed again may not seem like a bold prediction. But the Model X has been delayed many times. Therefore, it would be out of the norm for Tesla to stick with its current launch schedule for the vehicle. Tesla began taking reservations for the Model X in early 2012, requiring a cash deposit from customers. Initially, Tesla was supposed to begin production of the vehicle in late 2013.

But as Tesla's current predicted launch date for Model X draws near, this launch is starting to look official.

Model S (left) and prototype of Model X. Source: Tesla Motors.

The most recent reaffirmation of a Model X launch time frame for this summer was during Tesla CEO Elon Musk's interview in Detroit earlier this month.

After admitting he does "have an issue with punctuality," Musk insisted that the company is sticking to its current launch time frame for the Model X.

3. Demand will continue to outstrip supply.
So far, Tesla's global orders for Model S have outpaced global supply. In 2015, I expect this trend to continue -- for both Model S and Model X.

Currently, there are a number of ways Tesla could try to push demand higher that it is either not taking full advantage of or is not tapping into at all, e.g. paid advertising, marketing its Model X more prominently in its store, expanding its retail footprint faster, and more actively sharing its charging network story (consider this fast-growing Destination Charging network for Tesla vehicles that the company isn't even talking about).

Musk discussed these levers during the company's third-quarter letter to shareholders.

Then, bear in mind, there are lots of things we can do to amplify orders. ... We're just not pulling the levers that we could pull because there is no point in trying to amplify demand substantially beyond our ability to produce it and deliver it. That would just make people upset.

Musk says Tesla has enough unused levers at its disposal to amplify demand for Model S that it can drive up demand "at will."

Demand for Model X will have no trouble staying ahead of supply, since Tesla is already sold out of 2015 deliveries.

While all three of these predictions for Tesla in 2015 may sound optimistic, it's important for investors to keep perspective -- Tesla stock's rosy valuation already has big growth, a successful Model X launch, and high demand for future Tesla vehicles priced in. While a recent pullback in the stock price has made shares more attractive, investors should tread carefully. When a stock's valuation prices in considerable business growth, the risk of underperforming market expectations is amplified.

The article 3 Bold Bets for Tesla Motors, Inc. in 2015 originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.