Why Tesla Motors Inc. Won't Pay for Advertising in 2015

By Markets Fool.com

In 2014, electric-car maker Tesla Motors delivered 41% more vehicles than it did in 2013. In 2015, Tesla expects to sell 55,000 vehicles, 74% more than it did last year.To sustain this type of growth, the company will need demand for its vehicles to continue to grow. Fortunately for Tesla, demand seems to be the least of its concerns -- even as it refuses to spend a dime on advertising.

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Dual-motor Model S.Tesla's addition of dual-motor all-wheel-drive configurations to the Model S line helped to keep demand ahead of supply going into 2015. Image source: Tesla Motors.

Excess global demand rescues a struggling China market
Some skeptics may inquire: Didn't Tesla recently saydemand in China had run into trouble? Isn't this the first sign of the end of its ad-free marketing?

While Tesla's total global demand has consistently outstripped its supply, even in light of rapidly expanding production, the Chinese market did struggle in the fourth quarter. Tesla CEO Elon Musk blamed the company's public relations mishaps in the country concerning charging --he claimed Tesla's own public relations team was sending the message that charging in the country was more difficult than it really was -- and said fourth-quarter sales in the nation came in far below his original estimate.

How Tesla dealt with the shortage of demand in one market in a given quarter highlighted just how important it is to the company's growth story that global demand stay ahead of its global supply. Musk explained in an interview in Detroit earlier this year that his company "more than made up for" the lack of orders in Chinaby delivering vehicles to waiting customers in North America.

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While Musk says this demand problem is temporary, as the company works to repair its poor public relations in China, investors might want to know if the company would finally be demand-limited (and no longer supply limited) if its difficulties continue longer than Tesla expects.

Fortunately, an analyst pressed Musk on this very topic during Tesla's fourth-quarter earnings call earlier this month.

"Even if our sales in China were zero this year, zero, I'm still confident we could do the 55,000 cars," Musk responded.

Tesla said in its fourth-quarter letter to shareholders that it entered 2015 with 10,000 Model S orders and 20,000 Model X orders.

Tesla's "secret weapon"
Of course, the day will come when the market for the Model S, and even Tesla's upcoming Model X, peaks. After all, only so many people across the globe are willing to drop $70,000-plus on a car -- even if they receive government incentives for buying an electric vehicle and save some money on gas.

But Musk sounds like he has a plan forwhen demand finally does weaken,to help support high demand for its pricey products a bit longer.

Tesla store. Image source: Tesla Motors.

After emphasizing during the earnings call that he doesn't believe Tesla will have to pay for advertising this year, Musk dropped one of his typical cryptic comments: "I do have a secret weapon on the demand side that we'll probably start to deploy later this year for demand generation." Of course, he was quick to say such a move wouldn't be "totally necessary" but that it "could be pretty interesting." He wrapped up his incredibly vague preview of this secret asset by saying it could be a "good weapon against the dealers."

Whatever Musk's "secret weapon" for driving demand, it doesn't appear Tesla this year will finally start spending money on advertising. If it does, it's likely to be such a small portion of revenue as to be basically nonexistent. For now, Tesla has a number of marketing tools that are driving substantial demand: an unorthodox retail strategy, satisfied customers, word of mouth, and free test-drives. Why spend money to generate demand when you don't have to?

The article Why Tesla Motors Inc. Won't Pay for Advertising 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.