Here’s why Tesla is going to have to spend a staggering amount of money on future growth (TSLA)

Tesla reported fourth-quarter and full-year 2014 earnings on Wednesday. The results were a disappointment: a miss on revenue, and big miss on earnings, and weaker deliveries of cars in the final quarter of 2014 than expected.

That didn’t prevent CEO Elon Musk, fresh off a rocket launch by his other company, SpaceX, to back down when he held a conference call with analysts after earnings were announced.

He said that Tesla was going to spend a huge amount of money in 2015 to achieve an ambitious production target of 55,000 vehicles (2014 saw the company built 35,000 cars). In a research note on Thursday, Morgan Stanley auto analyst Adam Jonas expressed his astonishment:

[T]he company is targeting capex of $1.5bn in 2015, a figure nearly double our expectation and up 50% [year-over-year]. Guidance for operating expenses up nearly 50% [year-over-year] is more than 40% above our forecast (mostly due to rising R&D expenses).While [fourth quarter] cash burn of $86mm was roughly in line with our expectations, we look to our 2015 forecast expecting far, far greater levels of cash consumption than the $40mm we have currently modeled.

Jonas thinks such insane spending levels — in his estimation — support Tesla’s goal of building 500,000 cars by 2020. That’s 200,000 more cars than Morgan Stanley has baked into its own model, which is currently supporting a $280 target price (Tesla has been trading around $2o0 at the beginning of 2015, well down from its peak of $291, hit in September 2014.)

Tesla was trading down 6%, to $200, when the markets opened on Thursday.

TSLA Chart 2/12/15

It’s fine for Jonas to revise his modeling on this front, but it’s been abundantly clear that for Tesla to get from an annual production of 35,000 cars to 55,000 … 200,000 … 300,000 … and eventually to Musk’s goal of 500,000 by 2020 is going to be wildly expensive.

On the plus side, Tesla doesn’t really seem to have any significant demand problems. True, getting established in China has been rougher than the company anticipated. But that shouldn’t surprise anyone. Well-established car-makers can have trouble in China. And Tesla is operating on an import-only basis, rather than working with a Chinese partners to produce its cars in the country.

Demand is so high, in fact, for the forthcoming Model X SUV that Musk last year — For more information read the original article here.      

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