Should I invest in Tesla Motors Inc Stock?

Overview

In the last several weeks I have been following the news and the stock movement of Tesla Motor Inc. (ticker symbol : TSLA). After Tesla's CEO, Elon Musk released its long awaited "low cost mass market" car, Model 3, on March 31st 2016, I read several free articles on web about what financial analysts are thinking. I also looked at the balance sheet and income statement available on Google, and felt the stock was overpriced until I listened to Elon Musk on TED talk this weekend. I must admit that it is very impressive to hear Elon Musk in that session.

Elon's TED talk in 2013

Elon came on TED talk in Mar 2013. After listening to him in this talk, several thoughts crossed my mind. I looked at last few week's research again. There were a few things that stood out especially when I compared that talk to this year's "Model 3" release keynote. If you are a serious investor, I'll recommend you to listen to both of those videos on YouTube. Here is brief summary of what I thought was impressive to me.

In the TED talk session in 2013, Musk talked about the 3 step plan and gave an idea of the Model 3 price. And on March 31st 2016, in announcement of Model 3, he repeated the similar words. I found his words very consistent in the two talks that were 3 years apart. Three things that struck me at that moment:

1.Tesla has a plan and its plan has been consistent over years... You can compare the two sessions that are three years apart. Consistency builds confidence in a company's execution plan.

2. The dream and the vision that Elon Musk has is to solve a fundamental problem of the society: "sustainable energy production and sustainable energy efficient transport". I strongly believe in that vision. We as a society need to figure out how we can have renewable and sustainable forms of energy given all the environmental issues that experts talkabout every day.

3. Elon Musk makes a promise and keeps it. And not just that he is good at judging the timeline needed to deliver his plans.He estimates 3 years or so for Model 3 availability in 2013. And here we are, three years from that day, and we heard and saw the announcement of "Model 3".

With all these characteristics of a leader of Tesla, I feel Tesla can be a great long term investment as far as Elon believes in his vision and in making Tesla Motors Inc. the company that delivers on that vision to create sustainable means of transportation.

Consequences of Model 3 Release In 2016

I believe in every word that Elon says about sustainable energy production and transportation. However I also want to see if any material external market risks or internal operation risks exist for Tesla?

I believe there are two major risks:

1. Competition Risk : With model 3 release, Tesla raised ~ $0.3 billion from advance bookings of "Model 3". These bookings however also sent a message to Tesla's competitors. "There is an opportunity worth $10b or more in the US markets itself for a luxury electric car. "

When I examine this situation, I feel that gaining bookings was not a great move on Tesla's behalf. It may have short term gains however poses competitive risks. Tesla on one hands seems to have secured its future or on other hand may have potentially lost customers even before having the product available to sell. Larger car manufacturers who are trying their best to compete and provide similar value as TESLA in the market, could affect these bookings heavily by introducing a competitive automobile within same time or eeven earlier.

2. Reduced Demand Risks: Tesla's car production per quarter have been hovering between 14000- 15000 per quarter as per the recent releases by the company. With 325,000 in Model 3 bookings, about 1/3rd of the potential customers may have to wait 3 years from Dec 2017, before they see the long awaited vehicle in their homes, unless company changes production scale. In addition, every other potential buyer waiting to buy economy model of Tesla has to now wait until 325k orders are catered to. I personally will not like to wait until 2019 or 2020 to get Tesla Model 3. I will naturally shop around and see who else has a similar offering.

Conclusion

Therefore, I am uncertain what could happen in next two years and if I should invest in Tesla. While future based on expected customer base seems rosy, the competitors could change the market place dynamics or even customers patience may run out. With these two risks, I believe the upside of the stock could be limited in the short term. So I would rather be more cautious in making TESLA a big portion of my portfolio in next few months until I see plans on how The Model 3 production plans will be realized.

Happy investing. Feel free to add your comments.

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