By Refusing To Be a One-Car Company, Tesla Sets Itself Up for Big Success
Tesla Motors (TSLA), whose $100,000-plus electric Roadster symbolizes the new era of the electric car, can't be faulted for lack of ambition. In a world where most major carmakers are content to roll out just one EV, Tesla has always talked about selling at least three.
It's now beginning to reap the rewards of that strategy, at least in terms of its stock price, which has been on the rise -- and if you accept the reasoning of a J.P. Morgan analyst, could go a lot higher. Like, to $50 per share, yielding a near $5 billion market cap.
Nissan has the all-new Leaf, General Motors has the Chevy Volt, and a host of other established carmakers and startups are all bringing their EVs to market. Tesla is unique, however, in that it has combined its "first mover" advantage with a plan to build EVs for at least three distinct market segments.
A Tesla in the family
It's always been tempting to write Tesla off. The company has endured its ups and downs, at one point basically running out of money and forcing CEO Elon Musk to frantically appeal to investors (he succeeded). An Energy Department loan helped keep Tesla afloat until it could stage its IPO last year. But now it looks poised to finally execute its big strategy.
Tesla wants to have three vehicles in the market: the stunning and exotic Roadster, a sports car; a luxurious sedan; and a versatile crossover aimed specifically at families. This is exactly the kind of segmentation you'd come up with if you were building a standalone car company from scratch.
On the one hand, the lineup is incredibly simple, making it easy to construct, maintain and regularly refresh. On the other hand, the vehicles cover a huge chunk of the market -- Tesla can reach most potential customers, leaving only the entry-level to much larger companies, like Nissan, and smaller players who want to compete on price.
Focus on fundamentals
Because Tesla is such a media darling, with an outspoken CEO running the show (when he isn't running his other company, the commercial space exploration firm SpaceX), it's easy to assume the company lacks discipline. In fact, Tesla has been relentless about execution.
Prior to the arrival of the Nissan Leaf, Tesla had the only freeway-worthy EV in the market. And what an EV! The Roadster does 0-60 in 3.7 seconds, with style to burn. It was the halo vehicle to end all halo vehicles, and although Tesla struggled to keep up with production, it built enough Roadsters to remain viable and develop joint ventures with both Daimler and Toyota.
Now that the Roadster has served its purpose, Tesla is happy to let it drift into niche status while it goes all-in on the Model S sedan, scheduled to appear in 2012 to offer an all-electric challenge to Mercedes and BMW. J.P. Morgan correctly sees this is a Tesla tipping point, the moment when the company's business will zoom to profitability with operating margins "of as much as 9 percent."
It's Tesla for the win!
Most established carmakers were happy to let Tesla be the pioneer and the risk-taker. But now that the EV market is truly taking shape, it's catch-up time. Unfortunately for the big boys, Tesla has already staked out the high ground.
The major automakers have little choice but to scrap it out at the mass-market level. Tesla has the dominant EV brand in the luxury segment and will soon extend it to upscale families. After almost losing everything, Tesla may be on the verge of having it all.
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Photo: Tesla Motors