What’s behind Tesla’s charm offensive

8 Apr 2015 | Author: | No comments yet »

Tesla Gives Its Base a Boost.

Today, the electric vehicle company announced a slew of upgrades to its entry level Model S sedan (which is now in its third year of production). DETROIT — Electric car maker Tesla Motors is going after mainstream luxury car buyers by adding all-wheel-drive and more range and power to the base version of its only model. But even that pace wouldn’t match the 55,000 it wants to sell, so the company’s been making some moves to boost sales, before new models hit the showrooms later this year. However, in a blog post published Wednesday, Tesla said that when you take into account the cost savings of never buying gasoline, as well as a $7,500 government tax credit for electric-car ownership, the actual cost of the Model S 70D is only $55,000 over five years. Elon Musk held a press conference, unveiling software updates designed to eliminate the problem of “range anxiety” (concern that the car will run out of power far from a charging station).

In addition, there are significant improvements — the most prominent being all-wheel drive, driven by dual motors (which is what the “D” stands for). At the event, Musk also teased a looming update that would include autonomous driving functionality to its cars, such as self-steering on long highways. The dual motors give the car better performance, enabling it to go from 0 to 60 mph in 5.2 seconds. (The Model S 60 achieved that in 5.5 seconds.) The range is also improved at 240 miles (the 60’s was 225), and top speed is 140 mph. Musk also tweeted about a looming product announcement for the end of the month (despite his denials, when Musk tweets about Tesla, it usually lifts the stock price). CEO Elon Musk says with a US$7,500 federal tax credit that takes the price to US$67,500, plus tax credits in some states, the new version is price-competitive with BMW’s midsize 5-Series, or the Mercedes E-Class when you add in savings from not buying gasoline.

He said Tesla, which is based in Palo Alto, California, needed all-wheel-drive to appeal to luxury buyers, especially in colder climates such as the Northeast, where most luxury cars are sold. Even with the added features, the 70D will have trouble competing with Mercedes and BMW solely on price, said Tom Libby, an analyst with IHS Automotive in Southfield, Mich.

The surprise announcement on deliveries was made to combat “inaccurate” information being spread by short sellers. “Tesla appears focused on retaining the ball in the battle for headline catalyst news flow,” Stifel auto analyst Jamie Albertine told investor clients this morning. Wining the PR war is particularly important if the company needs to raise more capital from investors to fund its aggressive expansion plans this year. The company will continue to host events for customers but “there are no plans yet to do advertising or endorsements or any discounting,” Musk said. Since the company is expected to lose more money this year, and only has $1.9 billion of cash on its balance sheet, it might need external funding to pay for it. ” We don’t comment on speculation,” Tesla spokesman Ricardo Reyes told Quartz.

A good time for a company to raise new equity is when its share price is strong (because issuing new shares dilutes existing stockholders and usually pressures the share price). Tesla timed its last capital raising perfectly—it coincided with then record levels in the stock price—and came amid highly optimistic commentary on Wall Street about the company’s potential (some of that coming from one of the firms that underwrote the convertible debt issue).

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