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Tesla (Nasdaq: TSLA) Has a Huge Future in China

By , Associate Editor, Money Morning • @KyleAndersonMM •

In a public event today (Tuesday), Tesla Motors Inc. (Nasdaq: TSLA) Chief Executive Officer Elon Musk hand-delivered China's first Model S sedans to customers in Beijing.

The event marks Tesla's entrance into a country that has been viewed as a potential game changer for the electric-vehicle pioneer.

NAsdaq: TSLAChina has announced it wants 500,000 electric and plug-in hybrid vehicles operating in the country by 2015, and 5 million by 2020. China's huge demand would go a long way toward Tesla achieving its goal of producing 500,000 vehicles per year by 2020. By comparison, the company expects to produce 1,000 vehicles per week by the end of 2014.

Unfortunately for both parties, the country is far from achieving those goals. According to the data consultancy firm Automotive Foresight, only 11,410 electric vehicles and just over 1,000 plug-in hybrids were sold in China in 2013.

A lack of charging stations in China is seen as a major hindrance to Tesla sales - but a problem Musk is determined to solve. Tesla and Musk are working now to create a large "network" of charging stations similar to what the company has constructed in the United States.

"My instructions to the team are to spend money as fast as they can spend it without wasting it," Musk told reporters in Beijing Tuesday. "In dollar terms I think over time we'll probably end up investing hundreds of millions of dollars in charging infrastructure in China."

Before his trip to China, Musk also told reporters that the company plans to begin manufacturing vehicles in China within the next three or four years. That would cut down on the price Chinese consumers pay for the Model S sedans.

"At some point in the next three or four years we'll be establishing local manufacturing in China," Musk said. "China is very important to the future of Tesla."

Tesla began allowing preorders in China of Model S sedans in August 2013, and the company has been charging $118,000 for the luxury vehicle in China. That's about 50% higher than the base retail price in the United States, and the company has attributed the increase to "unavoidable taxes, customs duties and transportation costs."

The move into China is a huge step forward for the company, as the country is a major key to the company's and TSLA stock's success moving forward...

China Crucial to Tesla (Nasdaq: TSLA) Stock's Future

As the world's largest auto market, China is expected to contribute one-third of Tesla's global sales growth by the end of the year. Accordingly, the company plans to open stores in 10 to 12 cities across the country in 2014.

The next step would be manufacturing vehicles in the country. That would allow the company to avoid huge import duties and would allow consumers to take advantage of electric vehicle subsidies offered by the government. Currently, only domestically produced electric vehicles are covered by the subsidies.

Increased sales and vehicle production in China would be major catalysts to Tesla stock. From January 2013 through March 2014, TSLA shares soared 637%, but it has faltered lately. Since the beginning of March, TSLA is down more than 14%.

The recent dip has occurred during a tech industry sell-off that has seen the Nasdaq Composite drop almost 3% in the past month. Momentum stocks like Tesla took the brunt of the sell-off.

However, the news today out of China sent TSLA share up more than 6% in morning trading.

In the short term, Tesla will remain volatile, and price fluctuations should be expected whenever news breaks surrounding the stock. For many, the weak performance of the past two months is seen as a market correction for a stock that gained too much momentum throughout 2013 and early 2014.

Analyst opinions on TSLA stock vary widely, and price estimates range all the way from $75 to $325 for the stock. That makes Tesla's short-term future uncertain, with Tesla bulls and bears vehemently arguing both sides of the stock.

But Tesla is the type of innovative company that has the potential to disrupt multiple industries. The proof is in Tesla's proposed "Gigafactory," which is expected to produce enough lithium-ion batteries for 500,000 vehicles annually by 2020. That's more batteries from one factory than were produced globally in 2013.

And Tesla will begin producing batteries for the solar industry as well. According to Musk, the batteries produced in the Gigafactory will also help address the solar power industry's need for battery packs.

"I think Elon Musk is one of the most dynamic CEOs on the planet, and I believe he has the potential to make Tesla a $1,000 stock within the decade," Money Morning's Chief Investment Strategist Keith Fitz-Gerald said to his readers today.

"Tesla will start producing cars in China within the next few years and that's going to become a real boost to the bottom line because it will help the company avoid a 25% import tariff that many competitors have to deal with at the moment," said Fitz-Gerald. "I'm also excited about what Musk is doing with battery production, charging stations, and, of course, his willingness to take on the established auto sales model."

If electric vehicle demand in China meets the Chinese government's goals, Tesla is positioned perfectly to capitalize - particularly if it begins manufacturing vehicles in the country and reaches its 500,000 battery-production goal by 2020.

Where do you see TSLA stock going from here? How will the developments in China impact Tesla stock? Share your opinion on Twitter @moneymorning using #Tesla.

Our Chief Investment Strategist Keith Fitz-Gerald saw this "earnings beat" coming and put readers out in front of it. And it's perfect for the type of market we're in now...

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