By comparison, the automotive gross margin inched up from 15% to 17%. Thus, the company's total gross margin expansion, from 22% to 30%, was primarily a result of the development-services division. However, Tesla's core mission is to build cars, not outsource its product-design and expertise to industry laggards, and it's remaining loyal to this tenet. Having just purchased a $42 million manufacturing facility in Fremont, California from
United Motors Manufacturing
, Tesla's production timeline for the Model S is intact. At peak capacity, when utilized by United, the facility was assembling 400,000 vehicles annually.
Tesla's strategy, commencing with a premium model, though seemingly contradictory to mass-market appeal, is a tech-industry tactic. Silicon Valley-based Tesla likens its Roadster to a first-mover product, and initial buyers are "innovators." Sleek design and limited production are likely to garner brand cachet. Thus, Tesla is employing a step-down marketing technique. The Model S, at roughly half the price of the Roadster and with greater production potential, will appeal to a broader demographic of "early adopters." Tesla's next model, codenamed BlueStar, is, purportedly, a crossover that will be priced at $30,000 to target "early majority" electric-car buyers.
This strategy, called "crossing the chasm", is derived from the Everett-Rogers diffusion of innovations theory. Smart-phone and tablet-computer designer
(AAPL - Get Report)
has repeatedly implemented it, flawlessly. It is unlikely that Tesla will enjoy comparable success. But, so far, the company's performance is praiseworthy. U.S. automotive behemoths
(GM - Get Report)
(F - Get Report)
, despite solid progress since the recession, are still lagging behind rookie Tesla in key respects. Neither of the old-line automakers has an all-electric vehicle. The Chevrolet Volt, a plug-in hybrid, utilizes a battery similar to Tesla's. GM Vice Chairman Robert Lutz has credited Tesla as Volt's muse.
Other companies, including Toyota and
, which builds Tesla's highest energy-density lithium ion cells, have made equity investments in the company. Toyota owns 3.2% of shares outstanding and Panasonic controls 1.5%. Toyota invested $50 million into Tesla, immediately following the company's initial public offering, underwritten by
(JPM - Get Report)
, three of which now cover its stock. Deutsche rates the shares "hold." Goldman ranks them "neutral." JPMorgan ranks Tesla "overweight", forecasting that its stock will advance 29% to $30 during 2011.