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Tesla Motors: The Apple of Automakers

Stocks in this article: JPM TSLA GM F AAPL

BOSTON ( TheStreet) -- Tesla Motors (TSLA), a pure-play electric-car company, is an emerging power among automakers, a newcomer to an innovation-starved industry.

Tesla, named after Serbian inventor Nikola Tesla, was incorporated in 2003 and unveiled its first car, the Roadster, in 2007. With a base price around $110,000, the Roadster is in a premium bracket, comparable to gas-powered sport vehicles such as those offered by Mercedes and Porsche. Tesla is growing rapidly, but it faces material risk.

Tesla went public on the Nasdaq last June, and its stock has since fallen 2.1%. Already, it has been dogged by recalls. In May of 2009, it sent technicians to the homes of 345 Roadster owners to tighten hub flange bolts. Then, in October, it recalled an estimated 439 cars to remove an auxiliary cable, part of a back-up power system, that presented a fire risk if it chafed a nearby carbon-fiber panel. Relative to the recall woes of major brands, such as Toyota (TM), Tesla's were relatively insignificant. They haven't damaged sales, either. Roadster's unit tally has passed 1,500. The sports car is churning asphalt in 30 countries.

Tesla's first derivative, the Roadster Sport, is also gaining popularity, helped by positive reviews. Its zero-to-60-miles-per-hour acceleration of 3.7 seconds has legitimized the franchise as a competitor to established sports brands. However, two tenths of a second costs an extra $20,000. The Sport is priced above its predecessor, commanding roughly $130,000. The Model S, which is still in development, is a sedan, tentatively priced at around $57,000 and designed to poach market share from BMW, Audi and the like. Tesla reported in December that it has already booked more than 3,000 Model S reservations ahead of the release.

Tesla will disclose fourth-quarter results on February 15. During the third quarter, its net loss narrowed 9%, sequentially, to less than $35 million, or 38 cents a share, as revenue grew 10% to $31 million. Yet, automotive sales declined marginally as development-services revenue surged 78%, quarter-over-quarter, to $7.9 million, buoying the top line. From an investor's perspective, development services, which now encompasses partnerships with Toyota to develop a powertrain system for an electric RAV4 and battery design for the Daimler A-Class, is the preferable growth venue. The development-services unit's quarterly gross margin expanded from 58% to 68%, sequentially, assisted by new deals and improved pricing.

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