Cars are exciting, fast, and sexy. They can get your heart racing, they star in movies, and somehow they even have the ability to make 55-year old bald men attractive. Tesla's (TSLA) going public in June 2010 was also an exciting time. Here was a chance to get in on the ground floor of a brand new car company. The first model roadster was fast and looked like a smart little beast. In fact it looked remarkably similar to an exotic Lotus from some fancy European car magazine.
But that little car offered more than just sex appeal. It was the future. It was a chance to change the world. Who wouldn't want a piece of that action? So what if you couldn't afford that car? You could do even better than owning the car - you could own a slice of the company.
Investors were rewarded. The stock went from $19 to $23.89 on the very first day. That's a 25% gain in 1 day. My checking account would take approximately 12,500 years to amass that kind of gain.
Since then Tesla has defied expectations and short interest to propel to the $40 range. They've introduced a new Model S. Maybe S stands for sexy. I admit it's a great looking car - I think even better looking than the roadster.
Tesla has also entered into a business partnership with Toyota (TM) to develop electric drive trains for the RAV4. The future is finally here and this car company will change the world. Americans will give up their gas powered behemoths and save the planet. Then we will all hop aboard a SpaceX ship and head off to Mars to save that planet too. Or so CEO Elon Musk would have us all believe.
But for a moment let's come back to earth, set aside the fireworks and get back to some reason and common sense.
All this talk of a new era in transportation isn't exactly new. The first electric car was introduced in America in 1891. In 1902 an electric car was available that had a range of 18 miles. This number is comparable to the electric only range of the Chevy Volt today. In 1899 an electric car was made in Belgium with a top speed of 68 miles per hour - faster than Oscar Pistorius yet better behaved. Ferdinand Porsche built a hybrid car in 1899. There is nothing new under the sun.
Since 1896 over 1500 car companies have operated in the United States. That was narrowed down to 3 - only one of which did not need to be rescued by taxpayer money. You can have a good idea, an exciting industry, and an exciting time of technical change, but that's no guarantee of success. The reason electric cars didn't catch on 100 years ago is the same as today. They can't compete with gasoline. At the end of the day when all the fireworks and hoopla has died down and common sense returns, Tesla will have been a fun ride but its chances of success are slim.
Car of the Year: I have heard much back slapping and horn tooting over this accolade. Tesla has reason to be proud. The Model S can now join the ranks of such prestigious cars as the Chevrolet Citation, Chrysler K cars, and the Chrysler PT Cruiser. Suddenly the award loses a bit of luster. Anyone care to guess how many PT Cruisers were sold last year?
Top Gear Shenanigans: I watch Top Gear from time to time and enjoy their crazy antics. When they reviewed the roadster of course they pretended to run out of gas. Tesla knew this immediately because if a Tesla battery goes completely dead it's not just a simple recharge that will get the car up and running again. It's a very serious issue and I'm surprised it hasn't been brought up more. The show did point out the biggest problem and fear and that is running out of power. And say what you want about Top Gear's Jeremy Clarkson but I think he'd be a lot more fun at a dinner party than Elon Musk.
Another problem I have with the Model S is that tax dollars are going from middle and lower class families to help millionaires buy an expensive $80,000 second or third car as a toy. Why should a Model S owner get a $7500 check from the government? If I choose to ride a skateboard to work I'll be doing a lot more to save the planet than they will. Give me a check for $7500 dollars and I'll strap on the elbow pads right now.
Making money on this: The safest advice is to just stay away from Tesla. Sometimes not losing money is a noble enough cause just on its own. In general if a story sounds too good to be true it usually is. Elon Musk wants to change the world. Well that's a lofty goal but making real money on the stock market is sometimes more mundane. I'd save the pie in the sky talk for science fiction novels and 1950s Popular Mechanics magazines. If you've made money on Tesla then you are lucky. I've shorted Tesla once so far this year. I shorted at $35 and covered at just over $33. It was a quick trade that took less than a week. Right now with the stock hovering around its 52-week high I think it would be a great time to short it. I wouldn't wait for it to go bankrupt necessarily, but I would short now and look for a pullback to the $35 range.
And remember just because Elon Musk has big dreams doesn't mean the company will turn a profit. He's admitted recently to believing in aliens too, but that doesn't make it so.