Join        Login             Stock Quote

Tesla Motors: Price Increases Could Aid Margins

 December 02, 2012 09:14 PM

(By Mani) Tesla Motors, Inc. (NASDAQ: TSLA) raised prices over the entire Model S line-up by $2,500, effective for any new reservations after Jan 1, 2013, a move that could help the electric automaker meet the margin targets.

Model S is the world's first premium sedan that is built from the ground up as an electric vehicle, featuring Tesla's powertrain. Model S offers 40 kWh, 60 kWh and 85 kWh battery options. All deliver unprecedented range, with the 85 kWh variant achieving an EPA-certified range of 265 miles.

The latest action represents a 2-4 percent price increase across the line-up, which is now priced from $59,900 - $112,100 in the U.S. (depending on battery size and options). This pricing action has been widely expected over the last week or so and is in-line with general expectations.

[Related -Tesla, Apple Among Companies Investing Big Bucks in America! So Why Aren't Investors?]

"At the end of the day, the major driver of Tesla's share price will be profitability, which will be driven by volume, mix, pricing, and cost/margin. We don't believe this price increase will have a significant impact on demand (which is likely to exceed Tesla's ability to produce for the near to intermediate term)," Deutsche Bank analyst Dan Galves wrote in a note to clients.

Meanwhile, other major automakers have been increasing prices by at least this amount over the past few years. During the past three years, most automotive companies had at least three price increases while general inflation (CPI) increased 8.75 percent.

[Related -Tesla Motors' (TSLA): Forget the Naysayers; Buy the Next Great American Icon Now]

A straight 8.75 percent CPI increase now yields a base price for Model S of $62,400, an increase of $5,000. Tesla says it is increasing its prices only half that amount, giving Model S a new base price of $59,900 before federal tax credits

Moreover, the move should increase the probability that the company could meet their 25 percent gross margin target and give some relief to Street, which had been concerned over Tesla's margin prospects given their operating expenses have increased significantly.

"This move (price increase) could help address this concern," Galves said.

Tesla has stated a low-to-mid teen's EBIT margin target. Based on a high-$80k average selling price globally, 25 percent gross margin, $100 million powertrain revenue, Tesla could achieve 12 percent margin on 37k units.

"If this price increase assists in moving gross margin up to 27% (for instance), we expect that 12% margin can be achieved on 32k units. We'd note Tesla's most recent volume target was 30k-35k units (once Model X is being produced at scale, likely sometime in 2014)," Galves noted.

Palo Alto, California-based Tesla designs and manufactures EVs and EV power train components for partners such as Toyota and Daimler. Tesla has delivered more than 2,400 Roadsters to customers worldwide. Model S began deliveries in June 2012.

iOnTheMarket Premium


Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageGermany Is On The Rebound - Time To Buy?

Based on this year's 17% spike in the Stoxx Europe 600 Index, it seems investors have found a home in read on...

article imageIs Drought Risk In The American West An Economic Threat?

The historic and ongoing drought in California is getting harder to ignore in terms of its potential impact read on...

article imageFunds Behaving Badly

Discipline is still the key to read on...

article imageGenuine Parts Co. (GPC): This Company's Raised Dividends For 59 Years

There are 253 million cars and trucks driving along U.S. roads. And the average age of those automobiles is read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.