3 Bold Bets for Tesla Motors in 2014

Model S

Looking back, 2013 was Tesla's miracle year. Not only did the stock soar 350%, the Model S also blew away everyone's expectations. Not only did sales surprise, but the Model S also accumulated an impressive list of accolades. With the stakes so high, will Tesla be able to impress in 2014? Here are three bold bets.

Tesla will achieve a gross profit margin of 29%
Wait -- Ford only has a gross profit margin of 15.5%. How could this young auto manufacturer achieve a gross profit margin for its automotive business that is so much higher?

It starts with an impressive average selling price, or ASP. Tesla's Model S deliveries may begin at $69,900, but thanks to two enhanced models and a number of optional add-ons, the average selling price for Tesla's Model S is actually $109,600 (using non-GAAP revenue).

Next, a few other factors come into play to help Tesla achieve such an impressive gross profit margin. First, Tesla is only producing one model (the Model X  isn't expected to launch until the end of 2014, and in limited quantity). Second, rapidly expanding production will significantly boost Tesla's scale.

Already, Tesla has achieved a gross margin of 21% for its automotive business in Q3 (based on non-GAAP revenue, excluding zero emission vehicle credits). That's up substantially from the previous quarters -- 14% and 5% in Q2 and Q1, respectively. And Tesla believes 25% and beyond is within reach: "While we expect to achieve our target of 25% non-GAAP automotive gross margin in Q4 (assuming no contribution from ZEV credits), further progress is likely ..."

Competition will launch a fully electric competitor to the Model S
The Model S was a blockbuster success. Competitors won't sit around lethargically very long. While competitors have launched hybrids to compete with Tesla's luxury car, no manufacturer has yet launched a fully electric car with meaningful range.

Indeed, General Motors has already expressed interest in developing an electric car with range of up to 200 miles, according to The Wall Street Journal. Tesla is on pace to sell 21,500 vehicles, so you can bet General Motors isn't the only one considering an all-electric model to get a slice of this fast-growing market.

Tesla's demand will continue to outstrip supply
Word of mouth is all Tesla needs to sell its vehicles, apparently. Demand for the vehicle continues to outstrip supply, despite no discounts and no advertising. While Tesla is boosting production, it is also expanding rapidly into many countries in Europe and even China, both moves that will lead to greater demand. And a rapidly growing network of Superchargers will certainly help demand, too.

A good year for Tesla?
While two of these three bets are undoubtedly positive developments for Tesla, a competing vehicle could create challenges for the company. Or would it? Tesla CEO Elon Musk told CNN Money earlier this year that he would welcome competition: "I hope we are surrounded my electric cars from other manufacturers." The adoption of fully electric cars with meaningful range by competitors would accelerate the advent of sustainable transportation by electric car. And that's Tesla's mission, after all.

Of course it's tough to talk about Tesla's business prospects in 2014 without also mentioning its lofty stock price. At 10 times sales, massive margins and healthy supply are already priced into the stock. But the fact that predictions like these can even be made today shows just how far Tesla has come in the last year. Perhaps Tesla could exceed the market's expectations yet again in 2014.

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The article 3 Bold Bets for Tesla Motors in 2014 originally appeared on Fool.com.

Fool contributor Daniel Sparks owns shares of Tesla 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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