JPMorgan issued an eager beaver report on electric car startup Tesla (s TSLA) this week. JPMorgan analysts estimate that Tesla’s stock will hit $25 by the end of 2011, due to its low battery costs, early lead in the EV market and partnership deals with large automakers Toyota (s tm) and Daimler. I don’t expect Tesla’s stock to move too high until the end of 2012, when it plans to be a lot closer to selling its next-gen EV the Model S, and I think it will trend down until then.
Tesla’s stock closed at $17.60 today, down a bit from the $19 it started trading at in June, and down considerably from its highs of the mid-$20s in that first trading week. I think it’s likely that Tesla’s stock will mirror what’s happened to lithium ion battery maker A123 Systems’s stock (s aone), which slid from levels above $20 after going public in September 2009 to around $8 today. However, here’s a whole range of moves Tesla can do to try to negate that slide.
JPMorgan say that they think Tesla will be able to make its battery pack for its Model S for under $300 per kWh, and perhaps even as low as $250 per kWh. Other lithium-ion auto battery makers are shooting to produce next-gen batteries for closer to $500 to $700 per kWH. The analysts note the low cost of the small, commodity, cylindrical cells that Tesla uses for its battery packs, which are able to have a 44 percent better cell packing density.
The biggest bone of contention I have with the JPMorgan report is that the analysts are already estimating revenue for the next-generation of the Roadster, and predict that Tesla will make its first meaningful revenue (revenue of $1.8 billion) and have a positive operating income in 2013, based on both the Model S and the next-gen Roadster being on sale.
But Tesla says several times in its S-1 that “we do not currently plan to begin selling our next generation Tesla Roadster until at least one year after the launch of the Model S, which is not expected to be in production until 2012.” So assuming Tesla’s Model S launch isn’t delayed at all (come on now, let’s be realistic), the Model S will first go on sale at the end of 2012, and a year after that takes us to the end of 2013. So the next-gen Roadster could potentially go on sale at the end of 2013.
To my knowledge, Tesla hasn’t raised any capital for the next-gen Roadster program, and I’d anticipate that Tesla’s own estimated timelines on the next-gen Roadster will be changed significantly over the next two years.
The analysts do acknowledge that a one-year delay in the launch and volume ramp-up of the Model S would provide a hit to Tesla’s cash flow by $350 million. And even if Tesla hits all of its timelines, the cash on its balance sheet will fall to $44 million in 2012, even with the DOE loan and IPO proceeds.
Here’s Tesla’s timeline it needs to hit to make JPMorgan’s estimates:
- Launch Model S by late 2012.
- Sell next-gen Roadster by 2013.
- Every quarter starting in the fourth of 2012, pay down $13 million of the DOE loans.
- Pay down the DOE loan fully by December 2018. If that doesn’t happen, the DOE warrants (issued by the company to the DOE in exchange for the loans) would convert into equity.