Tesla Motors may make good on chief Elon Musk's claim of selling a half-million vehicles a year by the end of the decade, Motley Fool says. Of course, the author of the Foolish report in question owns Tesla shares but, now that we've gotten that out of the way, let's check out the logic.

Tesla moved almost 22,500 Model S vehicles last year and it was the best-selling plug-in vehicle in the US during the fourth quarter. The company expects to sell about 35,000 this year but the rate of global sales could be double that by the end of the year. From then on out, it's all about economies of scale, with demand mushrooming overseas, costs dropping as a result of the company's slated "gigafactory" and the introduction of the $35,000-ish Model E by 2017. Add it all up, and you can get to 500,000 EVs a year, the Fool says.

Late last month, Tesla disclosed details about its gigafactory, saying it will be fed by sun- and wind power, will employ about 6,500 people and will produce those half-million battery packs a year. Between the company and its partners, as much as $5 billion will be invested in the plant, which is slated to be somewhere in the southwestern US (but not in its native California).

To put those projected half-million vehicles in perspective, let's look at the unquestioned champion of the green car movement for the past decade, the Toyota Prius and its many Toyota and Lexus gas-electric siblings. It's taken many years to get to this point, but Toyota can now sell about a million hybrids around the world in nine months.


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  • 35 Comments
      Marco Polo
      • 9 Months Ago
      I certainly hope that Tesla can manufacture, and sell, 500,000 cars per year by 2020. 500,000 may sound a lot, but it's still less than 1% of the worlds annual passenger car sales. However, hopefully by 2020, Tesla will have lots of competition, and EV's will have become more advanced with even better ESD technology. Tesla's investment in battery production should place the company in an excellent position to take advantage of new developments. On the other hand, annual sales of 500,000, requires very complex logistical and administrative problems. So far Elon Musk and his team have proved excellent administrators, and much of this is due to his freedom prom the restrictions of older business models. Tesla has also had the great good fortune of being lavishly capitalised by loyal and passionate shareholders. These shareholders have been so dazzled by the dramatic increases in the stock value, that dividend payments are of no consideration. As Tesla grows it's requirement for continuous capital investment will increase, while its profit margins decline. Volume manufacture unit cost savings will assist, but offsetting increasing overheads will take real business ability. Given the strength of management talent displayed so far by Tesla, there's no reason to believe Tesla can't continue to meet the challenge of expansion.
      Spec
      • 9 Months Ago
      Do able? Maybe. But it is highly risky and the are definitely shooting for the moon. I hope they move ahead with the plans and succeed, it would truly be revolutionary.
        m_2012
        • 9 Months Ago
        @Spec
        Starting a new car company is shooting for the moon. Starting an BEV car company is shooting for the moon. Starting a new, BEV car company in the middle of a financial crisis and being successful at it is beyond shooting for the moon.
          Jim1961
          • 9 Months Ago
          @m_2012
          You forgot the part about highest crash safety rating ever, first car to win covetedMotor Trend COY by unanimous vote, consumer reports best ever, etc.
      Alan Stewart
      • 9 Months Ago
      Even if Tesal can make that many in a year, which I have no reason to doubt, and can a sell that many, which is more questionable, it still doesn't support the current stock value. Calculating a reasonable stock price for Tesla at 500K cars/year I get $75/share. This is based on the stock price of other car companies compared to the number of vehicles they sell each year. Obviously different manufacturers sell different mixes of vehicles this only a rough estimate.
        • 9 Months Ago
        @Alan Stewart
        Alan: Just curious, are you using market cap in your calculations. Ford has 3.98 Billion shares. Tesla has 125 million shares. If Ford only had 125 million shared it would be worth about $500 per share.
        SteveG
        • 9 Months Ago
        @Alan Stewart
        You are comparing companies that are basically done with their growth phase to a growing company that will not only sell cars but also license technology. If you really believe that, short away.
        SublimeKnight
        • 9 Months Ago
        @Alan Stewart
        Porsche (the only car manufacturer with Tesla like profit margins) sells about 150k cars worldwide. Their market cap is 22.6b while Tesla's is 29.5b currently. If there's something seriously wrong with Tesla's price, then there's something seriously wrong with Porsche's.
          SublimeKnight
          • 9 Months Ago
          @SublimeKnight
          Dave, When Porsche leases a car, it counts as a sale on their books. If the price of the lease is $80k they pretty much put $80k as revenue. When Tesla "leases" a Model S (that buyback guarantee Elon proposed) they are only able to put the difference of the purchase price minus the guaranteed price as revenue. So it looks like they took a loss on the car. If you ignore this, Tesla has better margins than Porsche. If you don't want to ignore this, then you can't complain about them getting credit in 2 years for sales they made last year.
          Dave
          • 9 Months Ago
          @SublimeKnight
          "Porsche (the only car manufacturer with Tesla like profit margins)" Tesla lost $74 million last year: http://investing.money.msn.com/investments/stock-price?Symbol=tsla&ocid=qbeb Porsche made $8.14 billion last year: http://investing.money.msn.com/investments/stock-price?symbol=POAHY&ocid=qbes On what planet are those numbers comparable?
        m_2012
        • 9 Months Ago
        @Alan Stewart
        Oops, you fail. They dont sell a traditional car, you cannot compare them to other car companies. Try comparing them to other EV only companies.
        archos
        • 9 Months Ago
        @Alan Stewart
        Then have fun throwing your money away shorting them.
      Electron
      • 9 Months Ago
      It had better be doable, a gigafactory means a giga-investment which in turn need giga-sales to pay for itself. Giga risks are part of that equation too. It's all uncharted territory and not all signs are favourable. Sales aren't exactly taking off in some major European markets and in the US Tesla's rivals are increasingly successful in undermining its effort to build a retail network. Optimism is good but Tesla still has some major challenges ahead.
        m_2012
        • 9 Months Ago
        @Electron
        Name one market that sales haven't exceeded expectations...still a waiting list no matter where you order from.
      Smoking_dude
      • 9 Months Ago
      while other carmakers are waiting or refusing to make batteries tesla goes all in. and it is a clever move. solar panels became very cheap even in the netherlands they pay off and the dutch start even to charge their cars. so tesla will be in the top postition to deliver batteries, motors controlls and chargers. some analysts say tesla should not do so, but they are short sighted. it is going to be interesting for me how deeply panasonic will be involved. as shareholder of panasonic stocks i have been profiting from the demand :) if they continue their partnership and on adds some "free" electricity for making those cells, this should pay off nicely for both.
        Spec
        • 9 Months Ago
        @Smoking_dude
        It is certainly a bold move. Whether it is clever remains to be seen. I certainly hope so but they need to cut the costs of batteries down for this to be successful.
          Spec
          • 9 Months Ago
          @Spec
          That is theory . . . we will see if they can pull it off.
          archos
          • 9 Months Ago
          @Spec
          "but they need to cut the costs of batteries down for this to be successful" You mean like build a mega-battery factory who's output will be equal to the entire world's current battery production and will cut battery costs by at least a 3rd?
          Julius
          • 9 Months Ago
          @Spec
          I agree with Spec... and part of the issue is how flexible the "Gigafactory" can be. If there's a new formulation of battery that can supplant lithium-ion, how much of a lead-time and cost would there be for a change-over.
          theflew
          • 9 Months Ago
          @Spec
          I think it's more than just battery capacity. If they start selling 25k, 50k+ in the US alone their support structure will have to change. GM, Ford, Chrysler are who they are because of the complexities of manufacturing cars, having parts available regionally, having service centers nationally. Just like the Volt and Leaf once you start getting past the enthusiasts and early adopters the people getting the car wont be as forgiving.
          Joeviocoe
          • 9 Months Ago
          @Spec
          While some people are waiting for a technological 'breakthrough' new cheaper chemistry... people should realize that economies of scale drop prices much faster. Tesla knew this from the beginning.
      Dave
      • 9 Months Ago
      The real question is - How much battery capacity will be used for grid storage and backup power vs. cars? "Mr. Straubel says Tesla has already been working on their fixed energy storage business for some time by ”developing and refining storage products” and that Solar City is going to assist them in not only marketing these products, but installing them." http://insideevs.com/tesla-solar-city-working-together-100-renewable-grid/
        archos
        • 9 Months Ago
        @Dave
        As much as needed for both. Musk stands to gain from the expansion of solar grid storage and from more EVs on the road. If demand exceeded their capacity then other battery makers will kick up their own production. End result = lower cost batteries, which benefits both Tesla and SolarCity
        Dactyl
        • 9 Months Ago
        @Dave
        Answer: whichever makes Tesla more money in the short and long term (best value). I suspect that the energy storage modules will come mainly from "old" Li-ion battery packs which are useful and possibly more valuable at 75% capacity than recycling the raw materials into 100% capacity packs. I can see the 10kWh to 30kWh packs being sold to offset peak grid loads from home-produced solar, a requirement that may become a necessity for PV-saturated areas to allow new (home) PV customers on-line. The current grid structure in these areas (CA and HI are prime examples) cannot support additional PV generation during the day. Therefore there is a need for new PV installations to limit their power generation into the grid to about 1 kW will storing the rest for "battery generation" into the grid for the next 12 hours. For example a house that uses 25 kWh/day could generate most of that in about 5 hrs (peak sunshine). Instead of dumping most of it into the grid, it would send no more than 1kWh/hr (1kW) and store the rest (minus house use) in a ~20 kWh battery which would then be used to power the house during the off hours or send it to the gird on off house. This would level the load and allow many more home-based PV systems without reconfiguring the grid (at many billions of dollars to consumers). If these "used" batteries are cheap enough, this can be included in the cost of the (declining cost) yet to be installed PV systems. Everyone becomes a winner!
      brotherkenny4
      • 9 Months Ago
      In my opinion Toyota has only recently become a cost savings technology for the consumer. What I mean is that the added cost of the hybrid technology has gone down in price and so someone buying a prius C can save in fuel the additional cost they pay for the car. This of course depends on how much you drive, but for the majority one can assume 12-15K miles per year. If Tesla hits $35K for an all ellectric, they will already be close to the break even point and for many will be a cost savings over other vehicles. I still assume a EV at $25K is a cost savings to the average commuter. That cost recoop time will only improve as gasoline continues to go up in price. So, I think the uptake of Tesla tech will be faster than toyota since they will get to the break even point sooner, and unlike GM and Ford and Fiat etc., they actually want to sell electrics.
        paulwesterberg
        • 9 Months Ago
        @brotherkenny4
        In terms of gas savings owning a prius is like paying 50% less for gas compared to a regular car(drive 50 miles on one gallon of gas). You also save some money on brake pads and other parts that have less wear and tear because of the hybrid system. In a plug-in vehicle when you are using grid electricity it is like paying 75% less for gas compared to a regular car(drive 100 miles for the cost of one gallon of gas). Pure EVs have fewer parts that will require maintenance(no muffler, no fuel system, no transmission, no oil pump, no water pump, no alternator, no u-joints or differential, no air filter, oil filter, etc).
        theflew
        • 9 Months Ago
        @brotherkenny4
        I think it's a stretch unless they get the care under $30K without rebate. One because after they sell 200k cars the federal tax credit goes away. Two, I don't think any car maker sells 500k that are greater than $35K.
          Dactyl
          • 9 Months Ago
          @theflew
          BMW world wide sales 2012: 1,540,085 (Wikipedia) How many [Mercedes + BMW + (all others)] sell for greater than $35K? Let's say only 25%. 0.25*[1.5M + 1.5M + (all others)] > 0.75M > 0.5M Let's say only 15% 0.15*[1.5M + 1.5M + (all others)] > 0.45M ~ 0.5M Need some help with the ">" and "~" symbols?
          Dactyl
          • 9 Months Ago
          @theflew
          Merceds: "With sales of 1,461,680 vehicles in 2013 Mercedes-Benz delivered more cars to customers than ever before." 1st site to come up in a Google search ... http://www.daimler.com
        Jon
        • 9 Months Ago
        @brotherkenny4
        It depends on the car you compare it to. If you compare a Model S to a civic, no you will not break in. If you compare a model S to a BMW M5, depending on how you option your model S, you could break even very quickly or even start out lower and save more. So if that 35k Tesla is aimed at the BMW 3 series type customer the break even will be very quick. Overall cost of ownership will be far less over the lifetime of the car. Will the Model E be a good choice for someone with economy on the top of their criteria? Likely not. We aren't quite there yet. Those in the $25k-$30k vehicle market might find interest in a $35k model E though.
      Levine Levine
      • 9 Months Ago
      You don't believe Tesla can sell 500,000 unit in 2020? When you bet against Tesla, you're betting against Elon Musk. Many have tired, but the Many have perished. When in doubt, follow Musk.
        Dave
        • 9 Months Ago
        @Levine Levine
        Tesla has no intention of selling 500,000 cars in 2020. Much of the battery capacity will go to grid storage and backup power.
          Joeviocoe
          • 9 Months Ago
          @Dave
          Some of that capacity, but Elon plans on MOST of the battery packs to be put into vehicles.
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