Crunching the Tesla Numbers

Crunching the Tesla Numbers

Richard Engdahl sits down with the Fool's own John Rosevear to discuss the auto industry. Now The Motley Fool's senior auto analyst, John says that it all started with his 2009 article, "Talk Me Out of Buying This Stock" (about Ford -- still one of his favorites). Today he offers an in-depth look at Tesla Motors and the electric vehicle market, as well as Chrysler's unique situation with Fiat .

In this video segment, John says that Tesla hasn't been very forthcoming about its actual numbers, but some say the automaker's sales target may be on the order of 500,000 vehicles a year. Certainly Tesla is enjoying a high volume of orders as it begins to ramp up production, but will that translate into long-term demand?

A full transcript follows the video.

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Richard Engdahl: How many cars does Tesla need to sell to be successful?

John Rosevear: Good question. The number that's thrown around is 500,000 a year. Conveniently, that's about what they'll get out of their factory if they max it out. The factory is an old facility that was created years ago for a GM and Toyota venture. Toyota ended up owning it. Toyota sold it to Tesla.

Basically, Toyota invested in Tesla, and then Tesla turned around and gave most of that money back to Toyota to buy the factory. That's kind of how that arrangement worked out.

So they have a big facility. They're not using a whole lot of it yet.

Richard: From what I understand, Tesla has more of a supply problem than a demand problem. There's a lot of people wanting their cars. Is that a misperception?

John: Well, Tesla's coy about how many orders are in the bank and how many cars they've delivered, and so forth.

We look at, really, any automaker doing business in the U.S. and every month they'll tell you, "We delivered 4,600 of this model and 23,000 of that model," and so forth. Tesla comes out once a quarter and says, "We shipped about 5,000 vehicles." It's very different. They don't want that visibility yet, for whatever reasons.

They say they have a lot of orders in the bank, enough to keep the factory running full speed, and that's certainly believable because they're in the early stages of their overseas push, pushing into Europe and so forth, that they're finding new customers who now can order the product.

One of the questions that lingers with Tesla is, are they just running through the world's early adopters, and then can they sustain it? Will there be 100,000 units of demand for them, 500,000 units of demand for them, three years from now, five years from now?

Richard: Thinking about how many -- you said 500,000 cars a year -- kind of a target for sustainable. ... How does that compare to a competitor like BMW ?

John: BMW built a little over a million last year. I don't remember the exact number; it was something in the 1.2-1.3 range, off the top of my head. Mercedes, slightly behind; similar range, though. BMW actually is... they have the motorcycle division, but it's a small part of their business. They really are pretty much a stand-alone automaker, and they make very good money at that level.

They make profits comparable to what a Ford makes, or a Nissan makes, because the margins are higher on luxury cars. Tesla's aiming for very high margins. They're aiming for margins that companies like Porsche are able to get.

Whether they'll be able to sustain them long term is an interesting question. Whether they'll be able to sustain them long term when there's an electric Audi and an electric Cadillac, and there's a little pressure on price and so forth, is an interesting question. We'll see how that plays out.

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Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and 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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