SOURCE: Devonshire Research Group

Devonshire Research Group

May 24, 2016 08:30 ET

Devonshire Research Group Issues Part II of Research on Tesla

NEW YORK, NY--(Marketwired - May 24, 2016) -  On Tuesday, May 24, Devonshire Research Group issued part II of research on Tesla. Building on Part I of Tesla's intellectual property analysis issued back in March 2016, "Tesla Motors - Part II" analyzes in-depth three additional angles and scrutinizes aspects of the firm's operating model, deliverables, and tax incentives.

Model 3 is at the center of "Tesla Motors - Part II." Analysis of suppliers, tight costs and delivery schedules, and the likelihood and consequences of a default on its scheduled delivery date of July 2017 are plumbed. "Tesla Motors - Part II" elaborates on the possibility that with the launch of Model 3, Tesla has increased its vulnerability and fragility as opposed to competitive strengthening within the EV market. An example of such potential fragility is the analysis of overall cost reductions Tesla and its suppliers may have to incur to produce and sell Model 3 for around $35,000. Devonshire Research Group argues that the profitability of the Model 3 depends on Tesla's ability to optimize its supply chain. Comparing the production cost for Model S with budgeted costs for Model 3 shows that suppliers will have to accept significant price cuts in order to manufacture Model 3 at its current target price. Moreover, current suppliers of numerous strategic, high-technology components have few patents and export to the US. A regular risk may appear, given that many Chinese suppliers are vulnerable to patent infringement accusations, thus potentially facing ITC injunctions. Delay with any outsourced component of the Model 3, of which there are plenty, could translate into mass customer deliver delays.

"Tesla Motors - Part II" also looks into Tesla's operating position to use and report non-GAAP financials, accept deposits from unsophisticated investors on the premise of delivering a not-yet mass produced vehicle on an almost impossible time schedule, and use these contributions to finance a litany of current-day expenses: selling, general, and administrative. Devonshire Research Group argues that Tesla has escalated a dangerous habit of unorthodox future-earning-based financing in pursuit of the questionably-profitable and long-delayed Model 3. A misstep in the next two years could become greatly problematic for Tesla and its waiting customers, perhaps even its suppliers.

Devonshire Research Group also discusses Tesla's use of government subsidies and tax breaks. The firm observes that Tesla's placement of tax credits disproportionately benefits the wealthy at the expense of the average taxpayer. As a manufacturer of electric vehicles, Tesla is entitled to take advantage of tax credits and subsidies put in place by the U.S. government. In turn, customers who purchase Tesla vehicles are able to get a significant deduction on their taxes for having acquired an electric vehicle. At current price points, only a small segment of the population can afford to purchase Model 3 or Model X (and take advantage of EV deductions) while a significant portion of Tesla's operations are greatly aided by taxes paid by those who cannot afford a Tesla. The social value of this exchange is a persistent question.

"Tesla Motors - Part II" is available on Devonshire Research Group's website at www.devonshireresearch.com

About Devonshire Research Group

Devonshire Research Group, LLC is an investment firm specialized in using large scale data mining, analytical methods, and semantic mining across 1,000's of datasets to determine the long-term viability of technologies, and to assess their competitive advantages.

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