Tesla Motors: the next auto giant in making??

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Despite a new-entry in the automobile market, Tesla has generated significant interest among investors who are betting that a Silicon Valley company can make the electric car a reality, fulfilling an opportunity that has been overlooked by Detroit for many years.

No wonder, less than two months from its IPO, four leading brokerages have started coverage of the company.

JPMorgan gave the stock an "overweight" rating. Meanwhile, Deutsche Bank started the coverage at "hold," Morgan Stanley started the stock at "equal weight" and Goldman Sachs started coverage of Tesla with a "neutral" rating.

"We believe that Tesla's deep technical talent, head-start in EV technology, low development costs, unique product offering, low cost financing, and already ubiquitous brand name position the co. to succeed in bringing competitive vehicles to market," Deutsche Bank associate analyst Dan Galves said in a recent note to clients.

Analysts say Tesla's key to success lies in its low-cost battery technology. Galves expects the current battery pack cost of Tesla at about $470 / kWh, compared to about $650 / kWh for the rest of the industry.

The analyst further believes that future packs (expected in 2012) could approach $300 / kWh, which would be dramatically lower than mainstream automakers.

"Lower cost and higher energy should enable Tesla to produce vehicles with unparalleled performance (range of 160-300 miles compared to 100 for most other planned EV's)," Galves said.

Moreover, Tesla's approach has been validated by Daimler and Toyota, which are both shareholders in Tesla and are using its battery packs in prototype electric cars.

Daimler owns about 8 percent of Tesla and plans to use its packs in its smart and A-Class cars, while Toyota owns about 3 percent of Tesla by investing $50 million and will use Tesla's packs for all-electric versions of the RAV4 and RX light trucks.

The problem for Tesla will be from its high-profile competitors like General Motors, Ford, Nissan and Mitsubishi, who are also aggressively venturing into the electric car market.

The Mitsubishi iMiev city car goes on sale in January, while the Nissan Leaf hatchback can now be ordered for a February delivery. Meanwhile, GM's Chevy Volt is expected to go on sale late this year.

Another problem with Tesla is it has never posted a profit since its founding in 2003. For its second-quarter ended June 30, Tesla reported a net loss of $38.5 million, compared to a loss of $10.9 million in the prior year quarter. Revenues, however, to $28.4 million from $26.9 million last year, helped by development services revenue.

However, the low-cost battery technology of the company and the range it offers gives Tesla a competitive advantage over its rivals, with Model S anticipated to make Tesla profitable.

According to Tesla, it needs to sell 20,000 Model S's at about $50,000 a piece in order to start producing profits for investors, implying about $1 billion in revenues.

 "We expect strong demand and profitability in the intermediate term....company has a promising future beyond this starting point, based on a growing product portfolio," said analyst Galves who has a price target of $17 on the stock.

Shares of Tesla Motors closed Tuesday's trading on Nasdaq at $19.03.