Why I Think There Is Still Upside Potential Left for Tesla

This Company's Putting Its Billions in Capital to WorkThe last time we looked at Tesla Motors, Inc. (TSLA) it was a $24.0-billion company. It’s added another billion and a half to its market capitalization since then, and one Street firm recently increased the company’s earnings estimates for this year and next.

Tesla is very much a growth story, and it’s been a very good stock for traders. (See “Buy High, Sell Higher: Top Investment Strategy for Buoyant Markets?”)

This is still a stock that is very much worth following, and its troughs have proven to be attractive buying opportunities.

Like the broader market, Tesla’s trading volume has been on the decline, but it’s still highly liquid and a favorite trader among institutional investors.

Tesla’s got lots of cash on its books, and it also has convertible debt and warrants. The company recently completed another equity financing, selling 3.9 million shares for total proceeds of approximately $355 million. Elon Musk, the company’s CEO, bought $45.0 million of the offering.

You know in an early-stage growth story like this that the company is going to be tapping capital markets for cash multiple times going forward.

Tesla is actually selling more vehicles in Europe than the North American market, but the vast majority of its long-lived assets are in the United States.

One of the company’s lesser-known strategies is to sell its products and components to other original equipment manufacturers. Tesla is selling an entire electronic powertrain system for the electric version of the Toyota “RAV4.” This includes a battery pack, charger, inverter, motor, gearbox, and related software to make it all work.

In the first quarter of 2014, Tesla made about $15.0 million in sales to Toyota, and this particular program is actually slated to end this year.

But the business strategy of supplying other automobile manufacturers with an electric powertrain is a great long-term opportunity. Instead of a customer spending an enormous amount of capital to develop its own electric powertrain, why not just buy it from the cutting-edge supplier? The Toyota deal was a good test run.

Tesla is now working on prototype samples of an electric powertrain for the Mercedes-Benz “B-Class EV” vehicle. Daimler AG (DDAIF) has a $33.0-million development program with the company.

While still in the development stage, supplying electric powertrains could actually become a very material part of Tesla’s revenues. It’s early days for all of this, but the company has the money to develop this side of the business.

Near-term, Tesla is focused on the development and sales of its “Model X” crossover vehicle. Roadworthy production design prototypes are expected by the end of this year, and volume deliveries are expected in the spring of 2015.

Globally, Tesla expects to deliver 35,000 “Model S” vehicles this calendar year for an increase of 55% over 2013. Production is on the rise, and the company should be manufacturing 1,000 vehicles a week by the end of this year.

Tesla is investing a lot in new plant expenses, equipment, and employees, which is uncommon these days. For example, the expected cost of building the company’s new “Gigafactory” for batteries is $5.0 billion.

This stock moves with relative sentiment, meaning that depending on the market’s mood, it could easily go up or down in a massive price move.

With this in mind, Tesla is still only in the early stages of becoming a huge success. The company’s going to have to hit up the markets for more capital, but there is probably way more upside to this stock.