If you are somewhat familiar even a little bit about stocks and have an interest in investing, you probably have heard about the recent boom of Tesla Motors (NASDAQ: TSLA) stock. Recently, the stock went as high as $110 a share; this was a 103% increase over a one month period and a 247% increase over a 3 month period.
So you may be thinking, what caused this sudden increase and growth? Tesla stock first jumped 31% on May 8th when it announced its First Quarter sales to be $562 Million and recorded first quarterly profit in its 10-year history of $15 million. In a letter to shareholders, CEO Elon Musk mentioned that Tesla delivered 4,900 electric vehicles as well as other important figures. One of them being that their gross margin doubled from 2012 to 17 percent. This was made possible due to better use of raw materials, smarter inventory management, and a reduction in the hours required to build each car by 40 percent over the quarter.
In the first quarter of the year, Tesla delivered more than 4,750 Model S vehicles in the US which when compared to the more traditional luxury car brands such as BMW 7-series and Mercedes S Class, is much higher. BMW sold 2,338 7-Series models in the first quarter while Mercedes sold 3,077 S-Class models. The demand for their most popular model, Model S, is projected to be around 20,000 units per year in North America and in Europe, the current order rate is 200 per week. In order to meet these demands, they have added some changes to their manufacturing process which should drive margins higher.
Some of these changes include:
(1) a reduction in temp workers since the beginning of the year
(2) increased efficiencies and reduced scrappage both at supplier and in-house production sites
(3) a streamlining of operations leading to a further reduction in full time employee man-hours from 60-70hrs/week previously to 40-50 hrs/week currently
(4) a significant improvement in logistics costs.
Currently their body assembly and finished assembly are still running on a 2 shift basis so the main goal of the production team right now is to get production levels of 20,000 on a single shift across most processes.
With the Tesla Model S being a luxury car and priced at $62,400, I feel that its affordable and much better then other cars. Do you see Tesla continuing to be as successful as they are now and do you think their stock price will continue to go up as it is now? As I mentioned earlier, they out sold Mercedes and BMW luxury models, do you think that will continue to happen in the future as well? What would you rather have, Tesla or other traditional luxury car models?