Kelly Blue Book's Senior Analyst On Tesla's Recent Acquisition And Earnings

Kelly Blue Book senior analyst Karl Brauer recently commented on Tesla Motors Inc TSLA Q1 results and its purchase of a tool and die company in Grand Rapids, Michigan.

Brauer said Tesla’s purchase of the Michigan-based tool and die maker was based on the need to secure sufficient production capacity to meet its aggressive 2015 sales volume goal.

The purchase “could represent the first of many such acquisitions we'll see in the months ahead," according to Brauer.

Regarding Q1 earnings, Brauer cited the continued commitment to launch the Model X in Q3 as the “most encouraging news” from the company’s earnings call.

“While China is a medium terms issue, meaning Elon [Musk] has the next 12 months or so to fix it, the Model X needs to go on sale soon and have no major issues during its launch. Any further Model X delays will reflect poorly on Tesla, though getting it to market is only half the battle,” Brauer said.

Interest in the new model would be “huge,” however, if there were any problems with the Model X’s introduction, then it could become “a missed opportunity to generate substantial revenue in a short period.”

Brauer added that the company’s revenue was “moving in the right direction,” yet, it was still “burning through its cash reserves and it’s never been profitable.”

“Building the gigafactory and creating a zero-carbon home energy system is a long-term investment that won’t pay off for years, yet the construction and R&D related to it are draining Tesla’s coffers today,” Brauer warned.

In addition to the cash burn, Brauer said that the Model X would still be just a niche vehicle with a production capacity of 10,000 to 20,000 for 2015 while, by comparison, 107,000 Lexus RX crossovers were sold in 2014.

Brauer concluded, “To create genuine high volume sales, and revenue, Tesla needs the $35,000 Model 3, which is at least 2 years away. Does the company risk running out of money before these long-term projects pay off?”

Tesla Motors Inc recently traded at $228.09, down 1.02 percent.