Tesla Motors, Inc. Buys Its Way Into Michigan Manufacturing

By Markets Fool.com

When Tesla Motors management said in its fourth-quarter letter to shareholders it intended to spend $1.5 billion this year on capital expenditures, this figure wasn't conservative by any means. The company had already spent about one-third of this, or $426 million, by the end of the first quarter. And now, Tesla's 2015 spending is about to soar higher. Tesla just agreed to acquire Michigan-based auto-parts maker Riviera Tool, according to theDetroit Free Press.

Continue Reading Below

Ramping up production fast enough to meet demand for its Model S has been an expensive challenge for Tesla. Now, with the planned launch of Model X this year, the company will have to spread its resources across two models. Image source: Tesla Motors.

"Riviera, which makes stamping parts that are shipped to Tesla's assembly plant in Fremont, Calif., has about 100 employees," wrote the Press' Nathan Bomey. "Tesla is expected to retain those workers and eventually rename the operation Tesla Tool & Die, said the source who is not authorized to speak publicly about the transaction."

Tesla as an acquirer
Tesla's acquisition in Michigan signals the electric-car maker's growing confidence as an established player. Not only is it Tesla's first known acquisition, but it is also the company's first move into Michigan, the home state of the three major automakers in the U.S.: General Motors, Ford, and Fiat Chrysler.

The acquisition comes as Tesla continues to try to ramp up production of its Model S and as it readies its Model X SUV for its first deliveries in Q3. Based on Tesla's guidance for Q2, Tesla plans to deliver about 20,500 vehicles during the first half of the year. This pales compared to the 32,500 vehicles Tesla will need to deliver in the second half of the year to meet its full-year guidance for 55,000 vehicles.

Continue Reading Below

Asterisk indicates future estimates. The 2015 Q2 figure is based on the midpoint of Tesla's guidance range for Q2 vehicle deliveries. The last two quarters on the chart are author estimates based on management's comments.

Achieving such a stellar second half of 2015 will require Tesla to execute exceptionally well, ramping up production faster (in absolute units) than ever before. The planned acquisition of Riviera is likely one of the ways Tesla is hoping it can execute its production ramp-up so swiftly this year.

"Tesla views the deal as crucial to improving the efficiency of its manufacturing processes," Bomey said.

Hyperaggressive spending
While the amount Tesla will pay for Riviera is unknown, virtually any range of potential prices Tesla could have paid likely won't go unnoticed at the cash-strapped company. Tesla's cash and cash equivalents fell by $396 million sequentially in Q1, leaving Tesla with $1.51 billion. And this spending isn't likely to slow much in the coming quarters.

Tesla said at the beginning of the year it would spend aggressively on Model X development, Gigafactory investment, stores and service centers, Supercharger network expansion, and other product development programs, including the Model 3. The Gigafactory alone is a $5 billion project, though Tesla has said it will share the costs for the factory with Panasonic and other partners.

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

If Tesla's past success with Model S is any indication of how the company's investments today will pay off in the future, investors should be happy Tesla is spending aggressively. But, of course, future success is not guaranteed. As the company continues to spend aggressively throughout the rest of the year, investors should hold Tesla to high standards, looking for signs its spending will pay off handsomely.

The earliest time frame in which investors could likely begin to get a good idea of how well Tesla's aggressive spending has been paying off is when the company reveals the production version of Model X, which CEO Elon Musk said during the first-quarter earnings call the company plans to get around to this July. Will the SUV be all that the company has made it out to be?

The article Tesla Motors, Inc. Buys Its Way Into Michigan Manufacturing originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and 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.