As of today, the stock price for Tesla Motors Inc has increased 623 percent over the past 12 months. This type of increase is unparalleled in the automobile industry in at least 20 years, according to reports. In this year alone, while GM and Ford have both experienced losses, Tesla’s stock has risen by an impressive 68 percent.

 

What is Tesla doing that the competition is not?  There are a number of smaller reasons, and then there is the big one. Let’s start “small,” with Tesla’s numerous recent accomplishments:

 

  1. Tesla’s Model S was named the “Best Overall” of 2014 by Consumer Reports,
  2. Motor Trend’s 2013 “Car of the Year,”
  3. Automobile Magazine’s 2013 “Car of the Year,” and
  4. Connected World Magazine’s 2014 “Connected Car of the Year Award,” honoring cars with the best on-board technology and innovation.

 

While all these accomplishments have helped in the growth of the stock, it does not change the fact that the cost of the 2013 Tesla model S is priced around $69,900, prior to financing and upgrades. It is not a mass market car at that price, and everyone is not looking to immediately make the switch to an electric car.

 

However, Tesla announced last week that it will be building a “gigafactory,” which will become the largest battery manufacturing factory in the world. This large-scale production of batteries has the potential to significantly lower the cost of Tesla’s luxury electric sedan, allowing for the possibility of cars priced for the mass market.

 

Furthermore, as Chairman of Solar City, Tesla’s CEO, Elon Musk, is  one of the largest providers of solar energy in the nation.  Therefore, the interest in large-scale battery production also illustrates Musk’s voracious affinity for energy storage, a move that may have huge financial implications for Solar City, as well as Tesla — Solar City has experienced similar rapid stock growth as well.

 

Specifically, if plans for the gigafactory are implemented, Tesla will produce more batteries than any other battery manufacturer in the world combined. Reports suggest that Musk’s plan for the gigafactory may not only fulfill the needs of its core automobile business, but that it may also have some use cases in other segments outside of the auto market.  According to reports, Tesla plans to sell the batteries for utilities management and storage of solar power in residences and at commercial sites.  The announcement of plans to build the gigafactory in the southwest of the United States has created a bidding war among the states of Texas, Arizona, Nevada, and New Mexico. The plant is a $4 to $5 billion investment that will create upwards of 6,500 jobs.

 

If all goes according to plan, Tesla has the potential to grow exponentially over the next 10 to 20 years. However, Musk’s plan has inherent risks that could lead to massive amounts of costs that might be difficult to recover from.

 

What do you think? Leave a comment below or tweet me @dannystevens91 with your thoughts!