TSLA Stock: Tesla Motors Inc Delivered a Blunt Reality Check to Skeptics

TSLA StockTesla Motors Inc (NASDAQ:TSLA) stock bears like to question the company’s competitive advantage. They argue that as mainstream automakers start rolling out electric vehicles (EVs), Tesla’s business would decline.

Despite this major concern, Tesla stock managed to climb more than $110.00 per share since hitting a low on February 10. That’s a 77% increase in two and a half months!

Tesla Stock: A Disruptive Force in the Auto Industry

For those who think Tesla can’t stand up to traditional automakers, here’s a blunt reality check for you: Ford Motor Company (NYSE:F) just spent $200,000 on a Tesla “Model X” to learn about its technology. (Source: “For Spent $200,000 to Dissect a Limited-Edition Tesla Model X,” Bloombergs, April 20, 2016.)

Ford paid $55,000 more than the sticker price to get one of the first electric SUVs. They got the 64th Model X that rolled off Tesla’s production line. Now, Ford is going to test it and then tear it apart to learn about its components and technology.

Of course, automakers often buy their competitors’ products to study them. In this case though, Tesla is clearly way ahead in the game. Just take a look at the chart below and you’ll see what I mean.

The luxury vehicle market is not as hot as it used to be. Even with the downturn in oil prices, American consumers are shifting away from full-size luxury vehicles. In 2015, the Audi “A8,” the BMW “7 Series,” and the Mercedes-Benz “S-Class”—the three iconic players in the full-size luxury sedan market—experienced double-digit sales declines in the U.S. (Source: “Tesla Fourth Quarter & Full Year 2015 Update,” Tesla Motors Inc, February 10, 2016.)

Tesla, however, did more than fine. U.S. sales of the Tesla “Model S” surged 51.01% year-over-year to 25,202 vehicles. Moreover, the Model S also outsold the Mercedes-Benz S-Class, which used to be the best-selling full-size luxury sedan in the world.

U.S. sales of Large Luxury Vehicles

In the face of increasing Model S sales, TSLA stock bears would still argue that the car is too expensive, and the company doesn’t have any presence in the mass market. The argument might have been true in the past, but not anymore.

Tesla unveiled its first mass market EV, the “Model 3,” on March 31. The event was nothing short of historical. There were long lines of customers at Tesla stores, waiting to place a preorder of the Model 3 before even knowing what it looks like.

In a little more than two weeks after the unveiling, it was reported that preorders of the Model 3 were approaching 400,000. The best part is that Tesla did not spend a penny on advertising. (Source: “Tesla’s Model 3 Reservations Rise to Almost 400,000,” Fortune, April 15, 2016.)

The enthusiasm for the Tesla Model 3 could give a huge boost to the company’s financials. To reserve a Model 3, you have to put down a $1,000 deposit. With 400,000 reservations, that’s $400 million in zero-cost capital for Tesla. This is particularly impressive given that Tesla only raised $226.1 million in its initial public offering (IPO) back in 2010. (Source: “Tesla IPO Raises $226.1M, Stock Surges 41 Percent,” WIRED, June 29, 2016.)

Also, if those orders translate to deliveries, Tesla could see huge top-line growth. At an average selling price of $42,000, the preorders received so far would generate approximately $16.8 billion in revenue.

The Bottom Line on TSLA Stock

Of course, it could take more than a day for Tesla to realize its full potential. And after a huge rise, TSLA stock might experience some pullbacks. But that doesn’t change the fact that Tesla is a disruptive force in the auto industry and its outlook is brighter than ever.