Tesla Inc

Fundamentals

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PREFACE
Good or bad, bullish or bearish, Tesla stock is going to shake hard in the coming days as it introduces its Model 3 and begins taking orders.

The bullish thesis for Tesla is simple: the success the company has seen on a relatively small scale for wealthy buyers will translate into mass market appeal once its $35,000 Model 3 car is released to the general public.


As a taste of what's to come, here is a poll that CNBC is taking in real-time:



We're going to make that "not so scientific" poll look awfully accurate when we dive into a much more thorough survey.

Meanwhile, the bearish argument for Tesla is also simple: The gigafactory manufacturing monolith is too big, will never see demand to fill it and the Tesla product is in fact a luxury bauble made at a loss that will not translate into true success.

Famed short sellers, Citron Research, opened a new short position on the stock and cited weak demand and an inability to supply the orders the company is receiving.



Now we'll check out the data.

SET UP
It has long been CEO Elon Musk's goal for Tesla to sell 500,000 vehicles by 2020. That's nearly ten-fold higher than the deliveries in 2015. This is the market he is going after:



We're looking at 134% growth every year, for the next six-years.

Tesla has built its $5 billion gigafactory -- the only manufacturing plant on the planet capable of building enough lithium ion batteries for that many electric cars. But it will take more than the factory to sell half a million cars.

Let's rip through what we know very quickly, and then get to the new data.

WHAT WE ALREADY KNOW
U.S. sales figures for 2015 reveal that Tesla's Model S rose to become the number one top seller within the U.S. market for large luxury vehicles, overtaking the Mercedes-Benz S-Class for the first time. Here's the incredible data (highlighting added):


All of these vehicles start around the same $70,000 as the Model S.

Just so we're perfectly clear on this data: Every other luxury sedan saw falling sales while Tesla saw a 51% increase. Tesla's Model S is now the single best selling large luxury vehicle and now owns more than 25% of the market. (Source: electrek). Tesla has already displaced the hallowed Mercedes brand.

Here is Tesla's all-time revenue chart:



TESLA'S SECRET
Those numbers presented above are basically a mathematical impossibility if not for one stunning secret: Not everyone buying the Model S was an owner of a $70,000 car before.

In 2015, Jefferies conducted a survey of Model S owners and discovered that nearly 40% had previously owned a car that cost less than $40,000 (Business Insider). Tesla is not only moving people up -- it's moving people up by staggering amounts.

TESLA'S POWER LIES IN ITS BRAND
A car manufacturer can either be economy or luxury. As early as 2011, Elon Musk noted this reality in his personal blog and specifically introduced Tesla to the world as a luxury item, first and foremost.

If we look at four of the largest auto makers in the world: Volkswagen, Toyota, Honda and Nissan. Each have wonderful name recognition, but equally, each auto-maker had to create a new brand to sell luxury cars:

Volkswagen -> Bentley, Bugatti, Lamborghini, Audi, Porsche
Toyota -> Lexus
Honda -> Acura
Nissan -> Infiniti

By virtue of the hundred thousand dollar Model S 'scale breaking race car' and the Model X crossover, Tesla has established itself as a luxury automobile with one of the most valuable brand names in the segment.

Not only do we have overwhelming evidence of this reality based on Model S sales -- the best selling luxury sedan in the world, but also Tesla's SUV crossover Model X. In an article CML Pro published on January 11th, "The Headlines Missed It: Tesla Sales are Out of Control" we learned this:


Remember, last year the firm had total sales of $4 billion. The initial Model X reservations (which require a $5,000 pre-payment) came in above $4 billion on their own. Now, here's why the brand and Model S and Model X numbers change everything.

MODEL 3
Enter the Model 3 -- even if it becomes a $40,000 vehicle as cynics insist, based on the brand appeal, we get this:


So, Tesla's Model 3 will be going after two markets. First, the agreed upon "Midsize Luxury Vehicle" segment with its 508,000 unit sales in 2015. These are cars like The Audi A4, BMW 3-series, Mercedes C-Class, Acura TLX, Infiniti Q50, etc.

But, if that market isn't big enough, consider our new reality where Tesla brings buyers of less expensive cars up. The Model 3 is absolutely in play for at least some of the non-luxury sedan market.

According to KBB.com. The Honda Accord, Toyota Camry, and Hyundai Sonata all top out with MSRPs above $31,000. Just those three vehicles alone totaled nearly one million vehicle sales in 2015.

Now we see the market Tesla is aiming at for its Model 3 isn't the 508,000 US luxury sedan market, it's the global luxury vehicle market totalling over $350 Billion (source: statista.com).

And now, we get to the breaking news: Tesla has the demand.

DATA
We know that the electric vehicle market is booming. Here are the forecast from Statista:



And then this happened: In an article just released by the Silicon Valley Business Journal, we learned this:


Details: This is where it gets incredible:

A poll found that 55% of electric vehicle (EV) potential buyers were more likely to buy a Tesla Model 3 when it becomes available, according to Clean Technica. That put it in first place in the survey.

Then, Tesla's $70,000+ Model S placed third among potential buyers with 20% ranking it as their top choice, while the Tesla Model X took fifth place, with 17.4% percent of pollsters selecting it.

Together, Tesla's three models make up 55% + 20% + 17% = 92% of the market, per this survey. We must note that more than one answer was allowed, but if you check out the survey it's just Tesla... and then everybody else.

Yes, 92%. And just so we're clear, the poll listed 75 vehicles for consumers to choose from -- this wasn't some silly survey with five choices (or whatever). And we also now have those 9,000 respondents from the CNBC survey, of which 76% would place a $1,000 down payment for the Model 3 and 56% intend to buy it. The data is right in front of us.

Even further: 65% of potential EV drivers are either much more or significantly more attracted to an EV that can use Tesla's Supercharger network. Another shrewd move on Musk's part to build this network out well ahead of demand.

THE REAL RISKS: APPLE AND GOOGLE
The risk for Tesla is not any of the existing vehicles from Honda, Toyota, General Motors or Ford. We can see quite clearly that it is a total and utter disruptor, destroying demand for even the hallowed Mercedes Brand.

The risk is Apple (AAPL) and Alphabet / Google (GOOG, GOOGL). CML Pro users have access to a full research dossier: "Apple's Car Will Change Automotive History."

Google's plans are also disruptive and equally dangerous. If we're looking for the possible derailment of Tesla -- we can stop looking at existing auto manufactures and start looking at the best technology companies in the world.

SEEING THE FUTURE
There's so much going on with Tesla we can't cover it all in one report - it spans several different thematic shifts in technology and it will battle Apple and Google for decades. But, to find the 'next Tesla' or 'next Apple,' or better yet, the companies that power the mega cap companies inside the guts of their businesses, we have to get ahead of the curve. This is what CML Pro does. Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution and break the information advantage the top .1% have.

Each company in our 'Top Picks' is the single winner in an exploding thematic shift like artificial intelligence, Internet of Things, drones, biotech and more. In fact, here are just two of the trends that will radically affect the future that we are ahead of:



The Internet of Things (IoT) market will be measured in trillions of dollars as of next year. CML Pro has named the top two companies that will benefit. Then there's cyber security:



Market correction or not, recession or not, the growth in this area is a near certainty, even if projections come down, this is happening. CML Pro has named the single best cyber security stock to benefit from this theme.

These are just two of the themes we have identified and this is just one of the fantastic reports CML Pro members get along with all the visual tools, the precious few thematic top picks for 2016, research dossiers and alerts. For a limited time we are offering CML Pro at a 90% discount for $10/mo. with a lifetime guaranteed rate. Join Us: Get the most advanced premium research delivered to your inbox along with access to visual tools and data that until now has only been made available to the top 1%.

Thanks for reading, friends.


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