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Making sense of Tesla: An investor's guide to a unique company

Part 3
Making sense of Tesla: An investor's guide to a unique company (Part 3 of 7)

Let’s take a look at Tesla’s expanding market

Tesla’s market

Tesla (TLSA) claimed it’s expanding the market. Let’s look to see what it’s targeting. As we saw in the prior article, Tesla’s electric-only product is unique, with other luxury brands offering hybrids and mass brands offering products that don’t come with the size and features Tesla offers.

TSLA expanded market slideEnlarge Graph

 

In the recent investor presentation shown above, Tesla claims it’s expanding the market and offering the key features—acceleration, range, starting price, and effective finance cost. So let’s say you have $75,000 to spend on a car and you are super eco-conscious, willing to pay a premium for a zero-emission vehicle.

How large is this market? According to the Electric Drive Transportation Association, year-to-date 2014 electric drive market share is 3.53% in the U.S. This includes hybrids, plug-in hybrids, and battery vehicles. The U.S. market is approximately 16 million vehicles. This leads to over 500,000 hybrid, plug-in, and battery vehicles for sale in 2014 based on current estimates.

US Plug in Sales EDTAEnlarge Graph

The above chart from the Electric Drive Transportation Association (the EDTA) website shows a sharp increase over the past three years. In May 2014, 6,651 plug-in vehicles sold—up 61% compared to May 2013, according to the EDTA. Including hybrids and battery vehicles, this brings the year-to-date total of 64,680 vehicles versus 6.7 million vehicles, or 3.53%. It’s becoming a significant market and it’s accelerating.

Tesla’s role

Tesla’s accelerating sales are part of this market acceleration, as Tesla delivered 25,000 vehicles from mid-2012 through year end 2013. In calendar 2013, Tesla sold 22,477 vehicles. In the context of the U.S. automobile market’s 15.5 million vehicles, Tesla has a less than 1% market share in the U.S. It’s a very small market position, considering BMW has a 2% U.S. market share. But the growth, as we can see from the chart above, is spectacular—with a 61% increase over last year. The main market participants, Toyota (TM), General Motors (GM), Volkswagen (VOW), and Ford (F), by the nature of their size, typically produce revenue increases within a range driven by national and global gross domestic product growth.

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