Tesla's Spilled Secret May Be Its Smartest Move Yet

It's no news that Tesla Motors has major expansion plans. But with its car cards on the table, investors are wondering why CEO Elon Musk spilled the beans on new developments before maximizing sales for current car models. This physics major knows there are reactions to every action, and his move may be more calculating than we think. Here's what you need to know.

Spoiled surprise
Shares of Tesla are up 180% this year, but the automaker isn't worried about making market moving announcements. After Q1 deliveries of its Model S clocked in at 4,750 units, 5.5% above expectations, Elon Musk is already moving on to next-generation models.

The CEO recently revealed plans for a new sedan and compact SUV with $35,000 price tags and 200-mile ranges. That cuts consumer costs in half, scoring major points for Musk's mass-market musings. As fellow Fool John Rosevear recently noted, Tesla's vision is to become "the electric version of a car company like BMW."


But bears are worried that Musk may be mouthing off a bit too soon. If car shoppers are tempted by Tesla's future offerings, this newest announcement might put off their purchases until newer, cheaper models hit the lot. Is this possible? Absolutely? Is it what Musk wants? Absolutely.

Out with the old
Tesla built its business on the back of its Tesla Roadster, Model X, and Model S, but less efficient technology and a prohibitive price put these models out of want and out of reach for most consumers. Musk knows that these most recent announcements might minimize sales for current models, but that means maximized sales for its upcoming additions. With mass appeal comes increased brand power, economies of scale, and a market presence on par with other luxury competitors.

Scale is especially important as Tesla hopes to make the most of luxurious margins. To do that, the automaker needs to fill out the capacity of its room-to-grow factory. Tesla's HQ is the old haunt of a Toyota Motors and General Motors joint venture, rated at 500,000 vehicles. The factory dates back to the early 1980s, and fell into Tesla's open hands after Toyota tossed it off for $42 million in May 2010.

Tesla's good fortune mirrors that of Tata Motors in 2008, when the Indian automaker bought Ford's floundering Jaguar Land Rover company for a paltry $2.3 billion. And just like Tata, Tesla is hoping to maximize sales in the luxury vehicle department. In April alone, Jaguar sales clocked in at 4,710 units while Land Rover roared ahead with 23,790 units sold. Sales are up 12.2% year over year, and the company enjoyed more than 30% growth in the UK and Asia Pacific.

Is Tesla worth it?
With Tesla's recent price spike, any attempts at valuation are virtually impossible. The company is in growth mode, and Musk's recent announcements prove once again that this company isn't playing by the rules. I've seen my own shares soar 175%, and I'm excited to buckle in for Tesla's mass market ride.

Although Tesla's plan to disrupt the global auto business has yielded spectacular results, there's more you need to know. Giant competitors are already moving to disrupt Tesla and investors can't decide whether the company can fend them off. The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.

The article Tesla's Spilled Secret May Be Its Smartest Move Yet originally appeared on Fool.com.

Fool contributor Justin Loiseau owns shares of Tesla Motors, but prefers pedal power for his own transportation. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo. The Motley Fool recommends Ford, General Motors, and Tesla Motors and owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

3 Comments

Filter by:
DanM

For anyone following tesla, this is *very* old news. The rough plans and timelines haven't changed in a couple years.

June 09 2013 at 10:17 AM Report abuse rate up rate down Reply
George Strong

Does BMW worry about it's 5 and 7 series when it also has a 3 series and X series SUV?

No.

First Tesla was a one-trick pony for only having one car in their lineup. Now they are diluting their brand by announcing their next affordable model?

June 09 2013 at 8:50 AM Report abuse rate up rate down Reply
imeldapallen

Not worried about the competitors. Its good for consumers, Supply and demand. Better technology epecially in batteries.

June 08 2013 at 3:49 PM Report abuse rate up rate down Reply