Tesla Surprises Investors With New Purchase but Investors Should Tread Carefully

Controversial carmaker Tesla (TSLA)  made an announcement this morning that surprised analysts and investors alike but in a good way this time. The stock rose by more than 2% during morning trading and was still up about one percentage point in the late afternoon.  However, the company remains a risky play for investors?

Tesla announced that it is purchasing a small engineering company, Grohmann Engineering, to help the company automate and accelerate its factory production lines.

Grohmann, based in Germany, focuses on highly automated manufacturing and will be renamed Tesla Grohmann Automation.

Tesla's CEO, Elon Musk, has spoken of revolutionizing car production with a "machine that builds the machine"... basically, a fully automated car factory. (Musk has also remarked that the employees whose jobs will be replaced by worldwide automation should receive a form of universal stipend.)

"As the machine that builds the machine, our factories are so important that we believe they will ultimately deserve an order of magnitude more attention in engineering than what they produced," Tesla stated.

CEO Musk has set a lofty pace of 500,000 units to by produced annually by 2018, doubling to one million vehicles by 2020. Currently, Tesla currently cranks out fewer than 100,000 vehicles per year. If Tesla were able to achieve this rate, it would mark one of the swiftest expansions in automotive history.

Tesla Grohmann Automation will become part of Tesla's new Germany-based operations, Tesla Advanced Automation Germany. And although the company declines to offer specific insights into any other developments in that country, Tesla hints at more to come. "We expect to add over 1,000 advanced engineering and skilled technician jobs in Germany over the next two years," the company stated on Tuesday.

Tesla aims to create the most advanced automated automobile factories in the world. Can the carmaker do that?

Perhaps. Tesla has a history of big dreams and promises, from perhaps jumping the gun on autonomous vehicles to taking more orders on cars than it can reasonably deliver at current capacity, to its attempt to purchase SolarCity.

That last point is a big one. Shareholders still have to vote on the proposed SolarCity purchase, which is valued at $2.6 billion. Analysts worry that the acquisition would put a huge cash drain on Tesla.

SolarCity recently held a $124 million bond offering - the highest rate that the company has ever sold its bonds for -- with about $100 million being scooped up by Musk, who founded the company, and SolarCity's CEO, Lyndon Rive.

Tesla itself still needs to raise capital to complete the building of its Nevada gigafactory, which is intended to make lithium-ion batteries, as well as the upcoming rollout of its Model 3 vehicles. The company will need about $2.5 billion in cash to complete these goals.

Tesla performed better than expected in the third quarter, making a profit for the second time in its history. But while some of the $22 million profit came from improved sales of Tesla's models X and S vehicles, a great deal came from selling its government-granted carbon pollution tax credits to other companies. That's not sustainable.

In fact, Tesla recently sold around $20 million worth of credits to MGM Resorts, a boon to helping the company with the construction of its gigafactory.

We'll see how Tesla's purchase of Grohmann Engineering pans out. However, investors who are wary of risk should continue to stay away from Tesla's stock, especially as the SolarCity vote draws near. This is one company that still has a lot to prove.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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