Tesla reported fourth-quarter earnings yesterday. Shares are up about 8% at the time of this writing. Is the gain merited? Yes. Here are four reasons investors should have incremental confidence in Tesla's journey to become a major auto player in an antiquated industry ripe for disruption.

Model S. Photo by Levi Sim, used with permission.


1. There's no stopping the "giga factory"
Tesla plans to deliver 55% more vehicles in 2014 than it did in 2013. Cool. But this stock isn't priced for next year -- it's priced for a bigger story. Tesla is priced to accelerate the advent of electric vehicles as a mass-market alternative. Tesla is priced for a giga factory.

A giga what? Imagine all the world's battery production in one factory and you'll get the idea. Tesla says raw materials aren't an issue; it's just a matter of building the factory. And now the plan is in place.

Very shortly, we will be ready to share more information about the Tesla Gigafactory. This will allow us to achieve a major reduction in the cost of our battery packs and accelerate the pace of battery innovation. Working in partnership with our suppliers, we plan to integrate precursor material, cell, module and pack production into one facility.

Beyond solving Tesla's primary bottleneck in vehicle production plans, the automaker said the facility would make it possible "to address the solar power industry's need for a massive volume of stationary battery packs."

2. The third-generation vehicle is coming
Tesla's confidence in the giga factory also gives me greater confidence in its planned third-generation car that will be priced around $35,000. "With this facility, we feel highly confident of being able to create a compelling and affordable electric car in approximately three years," Tesla explained. Tesla said it plans to "start early design work on our third generation car" in 2014.

Considering that the Model S was the top-selling vehicle in North America in 2013 among comparably priced cars, despite zero spending on advertising and severely supply limited deliveries, I believe the third-generation car will also be a compelling value proposition for the mass market at a much lower price point.

3. The Model X may outdo the Model S 
Maybe I'm just not a big fan of crossover SUVs, but I always figured Tesla's Model S demand would exceed Model X demand after the latter vehicle is launched in 2015. Apparently Tesla CEO Elon Musk feels otherwise. And considering that the company is taking reservations for the Model X on its website, he has some data to back up that belief. Musk outlined his thoughts on Model X demand during the fourth-quarter-earnings call.

[T]he Model X demand is very high. ... Even though there is zero marketing for the Model X ... demand seems to be remarkably high. ... In relative terms, it appears that the X will see at least as much as demand as the S. And if I were to guess -- and this is just a guess -- I think the X demand will exceed S demand. ... That's my best guess.

4. Tesla's gross margin looks sweet
Tesla's automotive gross profit margin, excluding zero-emission-vehicle credits, or ZEVs, exceeded 25% during the quarter. After achieving its year-end goal of a gross profit margin of 25%, the company has boosted its goal to 28% for 2014. But Tesla insists it could be higher if it priced cars like the competition -- but Musk & Co. won't go down that path.

Please note that Tesla is not trying to achieve the absolute highest possible gross margin, as this would require following the industry practice of charging excessive prices to customers in certain markets, which we believe is inconsistent with building long term loyalty.

A gross profit margin for a start-up automotive company is impressive. Sure, margins will see pressure when the company's average selling price trends downward after Tesla introduces its third-generation vehicle. But on the other hand, the giga factory will provide massive gains in economies of scale by then.

Don't sell Tesla shares on the run-up
Tesla's Cinderella story looks better than ever. While I can't confidently say Tesla is a buy at today's price, it's certainly not a sell. Sure, the valuation has priced disruption into the stock price. But there's no major hurdle standing in Tesla's way to becoming a major player in the auto market.

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The article 4 Reasons to Have More Confidence in Tesla Motors Inc.'s Story Today originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of 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.

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