Can Tesla Motors Inc. Really Amplify Demand?

Tesla Motors is rolling again, but bears aren't convinced. Even with the better-than-expected nearly 6,900 Model S sedans that were sold and delivered during the holiday quarter, skeptics wonder if the lofty valuations are justified. Is a market cap of $21 billion too much for a company moving 2,300 cars a month?

The answer, of course, is that Tesla isn't expected to move 2,300 cars a month forever, just as its average of a little over 1,800 cars a month the quarter before that didn't stick. Tesla will continue to ramp up its assembly lines, and it has big visions about where it will go.

During Tesla's third-quarter call, Elon Musk detailed annual demand goals that would result in selling 20,000 Model S cars in the U.S., another 10,000 in Europe, and another 10,000 to 20,000 everywhere else. If the Model X crossover that will hit the market in a few quarters meets similar demand, we would be talking about 100,000 cars a year between the two models. 

It naturally won't play out that way. The Model X will be incremental, but some of that demand will probably come at the expense of eating into Model S sales. Then again, things can get even better, since having two distinct models will help increase awareness of the brand. Asia could also be a huge market for Tesla at a time when the world's most populous nation is throwing its weight behind electric passenger cars.

However, it seems as if Musk feels that demand is something that can be orchestrated.  

"It doesn't make sense for us to do things to amplify demand if we can't meet that demand of production," he said back in November's earnings call. 

Amplify demand? Naturally, we're talking about marketing, but it remains to be seen what that would entail. It's not as if there are polo tournament sponsorships or full-page ads to be taken out in I Light Cigars With $100 Bills Monthly magazine. Tesla cars aren't cheap, and this isn't the kind of stuff that will change by forking over $4 million for a Super Bowl ad. 

It's not even the wealth factor, given the size of the addressable market that can afford a Model S or what will be a comparably priced Model X. There's also the "range anxiety" issue for a car that can't be compared to other premium vehicles since it needs to be plugged in between charges. Tesla's been building out a fleet of charging stations across the country to make cross-country trips possible -- and Musk himself will be embarking on such a trip later this year, when his kids are on spring break -- but that still complicates long journeys by mapping out the station locations and setting aside the time to charge up. 

Then again, it's fair to say that a Tesla owner will typically spend less time at a charging station than is cumulatively spent by other drivers at gasoline stations over the life of their vehicle ownership. That's a point that hasn't been amplified enough, and one would think that these charging stations will factor greatly in its marketing in the future, since it sets Tesla apart from the growing number of automakers putting out much cheaper electric cars. 

If production surpasses demand, Musk's plan to amplify demand will make all of the difference between whether Tesla shares continue to obliterate the market or fall back to earth.