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Electric Sales: Tesla Model S Boosts Company Stock

Electric Sales: Tesla Model S Boosts Company Stock
Eric Huebner

Many things come to mind when one thinks of a major American automaker. The Big Three of Ford, General Motors and Chrysler have dominated the automotive market in America for the better part of a century, and until recently, they determined what was standard in the automotive world. However, Tesla Motors, the brainchild of South African entrepreneur Elon Musk, has turned all previous expectations on their heads.

Just one year ago, most industry pundits were in agreement that Tesla was going under. The company was running up massive debt trying to secure funding to produce its Model S electric performance sedan and whispers had begun to circulate that its case would be the Solyndra scandal reincarnated. With competitor Fisker Automotive headed for bankruptcy, many believed that Tesla would be close on its heels.

However, that wasn’t the case. Tesla was indeed able to begin production on the Model S and the results have been nothing short of extraordinary. Consumer reports gave the car the first perfect review since 2007, stating, “Is the Tesla Model S the best car ever? It comes close.” Reviewers have singled out the EV’s impressive range and refinement for praise, and this success has been reflected across the entire company.

Last Wednesday, Tesla announced their first quarter of profits since the company’s inception, posting profits of 12 cents per share. This stands in stark opposition to the financial report issued but one year earlier, in which the company realized losses of 76 cents per share. This has led to the company’s stock leaping in value by 57 percent over the past month and a staggering 150 percent over the past year, with no signs of slowing down.

Tesla is looking to capitalize on this leap by selling off up to 3.1 million more shares and offering $450 million of notes in public offerings, which will not only generate capital for the development of Tesla’s next model, an inexpensive, mass-market sedan, but will also allow the company to pay off its government loans in full. In total, the company hopes to raise roughly $830 million in new capital.

Although this move is expected to drop the company’s profits by up to 6 cents per share over the next several years, it makes long-term financial sense, as it removes the debt owed to the federal government as a limiting factor, allowing the company to be slightly more adventurous in the ways that it develops new models and raises new capital. Some investors have cited tapping the public markets as a cause for concern, believing that the company may be incapable of generating the necessary funds in any other manner. Many pundits have downplayed these claims however, and focused on the quality of the cars produced by Tesla and the manner in which it has outlasted its major competition.

With this sudden success, talk has begun to circulate that Tesla may soon be considered America’s fourth big automaker. While Tesla will have to sell an enormous amount of vehicles to be considered on the same scale as the Big Three, it has rapidly developed into the singular dominant player in the electric segment and shows no signs of backing down any time soon.

 

[Sources: Wall Street Journal, Business Insider]

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