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Tesla Motors: The Apple of Automakers

Stocks in this article: JPM TSLA GM F AAPL

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 Apple (AAPL) 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 (GM) and Ford (F), 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 Panasonic, 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 Goldman Sachs, Morgan Stanley, JPMorgan (JPM) and Deutsche Bank, 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.

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