Schmidt Karl Ludwig Believes Tesla are an Excellent Buy

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With so much bad news on Tesla Motors, James Lee of Schmidt Karl Ludwig looks deeper into the engine that will drive Tesla forward and finds there is plenty in the tank.

Tesla Motors TSLA hit a trading peak of $291 in September, 2014 and over the past six months, analysts have offered a wide range of price targets, ranging from a low of $65 to a high of $400, but since late 2014, Tesla has shed billions in market cap.

Where is its growth potential and why should you as an investor put your hard earned cash into what could be perceived as a stock that's in decline? Well the answer is simple, if you are a day trader then leaving well alone is a good choice, it's not as if there are not better fish to fry. On the other hand if you are looking past your nose and have an extended time horizon then Tesla Motors is a definite buy for your hard working portfolio.

Long-term investors, and most investors are if they are honest, generally don't trade stocks. What I mean by that is the average investor mostly ignores short-term price movement, with two obvious exceptions. First, if you are considering buying a new stock and it rapidly declines, they often jump on that opportunity as I did with Tesla in November. Second, if a stock's valuation no longer makes sense, sell it because you should be interested in situations where long-term upside potential is more than the risk I'm taking as a shareholder. Admittedly, Tesla at $240 which is where most analysts place it has less upside than Tesla at $120. With a market capitalization of over $30-billion and the company expect to sell about 35,000 cars this year whereas Ford and GM, who sell millions of cars per year, are worth about double Tesla. There is no possible way to justify Tesla's market value on any current or near term financial metrics. But if you're willing to look forward, as I am, you might still see tremendously exciting growth that's worth sticking around for.


Tesla announced a $1.6-billion capital raise along with plans to build a massive battery factory that would be larger than the world's current total battery production. By 2020, Tesla expects the factory to support production of 500,000 third generation electric cars per year. Tesla could do $30-billion in annual sales within six years. The company's biggest challenge at the moment is getting enough batteries to meet customer demand for its Model S electric sedan. Tesla was only able to deliver about 22,000 cars last year. this consumed 5 per cent of all rechargeable batteries made that year. Put another way, if Tesla used the entire world's production of rechargeable batteries for its Model S sedan, it could make enough cars to hit 0.4 per cent market share. Clearly, the world needs more battery-manufacturing plants, and fast.

But it's also important to look at the big picture. Tesla is the first car company building its own battery factory to support much larger scale production. It's the only car company building a network of superchargers across North America, Europe, and likely Asia in the next couple of years. Tesla has also differentiated itself in how it sells cars (no dealerships) and services them (the company's own mechanics, "Tesla Rangers," can come to you for most repairs). Tesla is taking control of the most critical part of the supply chain as well as the entire customer experience, just as Apple has done for mobile devices.


Tesla is also starting to sell battery packs and associated control systems for use in solar-energy storage systems, giving residential and commercial building owners a way to reduce energy costs and have a backup source of power when the grid goes down.

These small points though are not all the long term benefits. Self-driving Tesla cars will be in the U.S. by summer so says Musk no small claim. , but the chief executive of Tesla, took a big step in that direction when he announced that the maker of high-end electric cars would introduce autonomous technology. The technology would allow drivers to have their cars take control on what he called "major roads" like highways. that a software update not a repair performed by a mechanic would give Tesla's Model S sedans the ability to start driving themselves, at least part of the time, in a hands-free mode that the company refers to as autopilot. After the software update this summer, the cars can also be summoned by the driver via smartphone and can park themselves in a garage or elsewhere, while a handful of states have passed laws legalizing autonomous vehicles, those laws were written to cover the testing of driverless cars, not their use by consumers. Though according to Tesla "nothing in our autopilot system is in conflict with current regulations the system was designed to be used by an alert driver. We're not getting rid of the pilot. This is about releasing the driver from tedious tasks so they can focus and provide better input". Google, raised eyebrows at a January event in Detroit "Google did not believe there was currently a "regulatory block" that would prohibit self-driving cars, provided the vehicles themselves met crash-test and other safety standards." Let's see what the summer brings in 2015. Whether this comes a reality is another matter but it's the thinking outside the box, leading by example, which has driven tesla shares in the past. Don't forget Elon Musk is the only private company delivering to the space station with his company Space X. Nothing is impossible.

A software update within the next two weeks will give Tesla owners a new set of active safety features, including automatic emergency braking and blind-spot and side-collision warnings. Also to be added are tools to help drivers monitor the status of charging stations and plot routes to ensure the ability to complete a trip without running out of battery power. There is also a surge in home charging and a commercial charge for restaurants and shops where tesla pay for the installation.

The biggest thrill I feel is the rumors circulating that Apple might be very interested in a takeover, with Apple themselves very interested in a driverless car and the mega factory for batteries, please note the ongoing spat with A123 batteries where Apple have been accused of poaching no less than 100 of their staff. With over $130bln war chest in cash they can well afford it, one only has to read between the lines , though please take care this is a personal opinion but one well founded I feel.

The crunch add Tesla as a long term hold and reap the rewards, it's not all doom and gloom and with its latest securing of raw materials for its batteries one that will definitely pay off over time.

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