Is Tesla Motors, Inc. (NASDAQ/TSLA) a $500 Stock?

Tesla MotorsIf you invested in Tesla Motors, Inc. (NASDAQ/TSLA) a few months ago, you are likely to be smiling now. In less than four months, Tesla’s stock price climbed 39.8% from $191.00 to $267.00. Moreover, the upward trend is likely to continue for this electric car company. Here’s why.

Strong Growth in Car Sales

Tesla has solid growth in car sales despite adopting a very bold strategy for the Model S—no advertising. Founder and CEO Elon Musk prefers to use social media platforms, mainly Facebook and Twitter, to interact with his fans. The company also invited journalists to test drive the car, and the majority of reviews have been positive.

The strategy saves an enormous amount of marketing cost for the company. Moreover, the results are good. In the first quarter of 2015, the company delivered 10,030 cars, a 55% increase year-over-year. In the second quarter, it delivered 11,507 vehicles, a 52% increase year-over-year. By April of 2015, Tesla had delivered approximately 70,000 vehicles to consumers worldwide.

When you have a good product, word of mouth does the marketing for you. And for Tesla, Model S has definitely been a solid product.


Telsa is taking this word-of-mouth approach to the next level. The company recently announced an incentive program to encourage its existing clients to convince their friends to buy the Model S. Tesla would give a $1,000 credit to owners who refer their friends to buy the car. Moreover, the referred buyer would also get $1,000 off the purchase price.

Powering Your Homes Too

Tesla has ambitious plans for the future; they are not just in the automotive industry. In April of this year, Elon Musk announced that the company would move into solar energy. It would offer a suite of battery systems to homeowners, businesses, and utilities.

The consumer product, called Powerwall, is actually not that expensive compared to Tesla’s automotive offerings. A 7 kWh unit costs $3,000, while a 10 kWh unit costs $3,500. These systems would provide enough power for basic home appliances during blackouts.

The batteries in Powerwall are derived from batteries in Tesla’s cars. To sell these products, Tesla would partner with other companies. One of the partners, SolarCity, was founded by Elon Musk’s cousins with Musk as the chairman and largest shareholder.

Trying to break into the solar energy business, Tesla is not just aiming at homeowners. Elon Musk said that these batteries could be scaled up infinitely to industrial levels, meaning that the new product could also serve schools, hospitals, shopping malls, and utility companies.

More Affordable Cars in the Future

Some people have been saying that Tesla’s products are so expensive that its market would be limited. Sure, the current offering does not look cheap—the Model S starts at $70,000. However, buyers get a $7,500 federal tax credit, as well as applicable state incentives. Moreover, running costs are much lower for electric vehicles compared to those powered by internal combustion engines, because there is no gasoline cost and fewer services are required. Tesla estimated that owners can save $10,000 over five years of owning the Model S. Therefore, after incentives and savings, the actual cost of the Model S starts at around $55,000.

The story does not end there. Of course, $55,000 is still in the premium car category. Tesla wants to make cars that are affordable to the average consumer. The company had announced its future product, the Model 3, which would start at around $35,000 before government incentives. After federal tax credit, the car would cost $27,500, and you get all the running cost savings of owning an electric vehicle too. Moreover, Tesla would not compromise on the performance of this less expensive model. The Model 3 would do 0-60 mph in 4.1 seconds, and would have a range of 200 miles.

The takeaway is this: Elon Musk is never short of daring ideas. And he has a solid track record of turning them into reality. Since Tesla’s IPO in 2010, the company’s stock price has surged an astronomical 1,290% from $19.20 to $267.21 today. With strong growth continuing on, and exciting projects under way, I wouldn’t be surprised if its stock price hit $300.00, $375.00, or even more than $500.00 per share.

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