Tesla's New Battery Contract Won't Jump-Start the Stock (Correct)
NEW YORK ( TheStreet) -- Tesla Motors
Tesla is working feverishly to source enough components to reach its goal of doubling production by the end of next year. This includes batteries produced by Panasonic, which all electric vehicles need to power their hungry motors.
The current two-year-old contract calls for Panasonic to provide enough batteries to power about 80,000 vehicles over the course of four years. For a company expected to exceed 21,000 vehicle deliveries this year and a desire to drive past 40,000, the current battery contract wasn't nearly enough.
On Wednesday, the companies announced an agreement to raise the number of battery cells to nearly two billion. Current production uses about 6,000 to 8,000 cells per vehicle, resulting in a capacity of, give or take, about 300,000 vehicles. The Street's Chris Ciaccia describes the latest agreement between Panasonic and the California automaker that initially sent shares of Tesla higher.
It sounds impressive at the surface level, but there's a reason why shares of General Motors
Keep in mind that I'm not suggesting the company isn't growing rapidly; if it can sell 100,000 vehicles in 2014, I will be impressed, as will many others. However, I'm not writing about how cool I think the car is or if it will outsell the Mercedes-Benz S Class. The only concern I have is if the environment supports the share price appreciating or depreciating.
In the best-case currently visible scenario, even with full production goals met the shares still don't even come close to justifying a price above $125 a share in 2013. In fact, I think everything above $100 is an easy short.
In 2012, about 14 million new vehicles were sold in the U.S., including passenger cars and light trucks. Using 2012's numbers as a guideline for 2014, if Tesla sells 40,000 cars in the U.S., that's less than a 0.3% market share. Moreover, each vehicle sold for Tesla represents less profit than for GM, Ford or Toyota.
By less profit what I actually mean is that, operationally, Tesla has yet to report a full year of profits. Remove the California zero carbon credits (which most states don't have) and the numbers become even bleaker. But let's move past the "what ifs" with tax credits and just examine the reality of operations and current profitability.