I'll be doing a "Mea Culpa" here. I sometimes throw out provocative articles, based on real worries, to see how the other side defends its damsel. Such was the case with my latest (and only) article on Tesla (TSLA). I threw an article into the ring based on battery worries, and then faced the reaction of an entire army of owners and Tesla longs.
This article is the result of that confrontation. I'm here to say that, at the very least, I was somewhat swayed by the full brunt of the reaction, much of it intelligent. This is no Amazon.com (AMZN), which usually reads more like an episode of "The Walking Dead," with longs swaying side to side and mumbling "invaghesting! Futhure! Fuhklgfilment! Clouuudggrr!".
So what swayed me the most?
The single most important fact swaying my opinion was the discussion of the specific cells being used in Tesla S, the Panasonic NCR18650A. In a post by tech01x he linked to a Panasonic presentation which includes estimates for the degeneration of these cells over a demanding schedule of charge-discharge cycles. Although this analysis misses the loss of capacity over time, it still presents a scenario where more than 70% of the rated capacity would be kept after 2500 cycles.
This is huge. Even at just 100 miles per cycle, it would mean 250k miles with the vehicle retaining decent range. It opens up the chance that the battery might last the vehicle's life and thus alleviate my own concerns significantly.
Not only that, but the presentation showed a roadmap towards still-higher capacities which would undoubtedly benefit Tesla, either through greater possible ranges, or through lower costs per vehicle.
Although many other intelligent arguments were made, this was the one that clinched it for me. I'd recommend everyone to check out the presentation for themselves.
Why not totally swayed?
Some of the reaction still reads like the autos are not care-free. Low temperatures need to be avoided. Long immobilization needs special care. Don't drive it to zero. Don't charge it fully. This still reads as "niche". And obviously the batteries, if people fear they might die or lose range, will still be a significant factor even if they don't die or lose lots of range often.
In the ICE marketplace, a lemon model is not necessarily an auto which always breaks down. It usually just breaks down a bit more often. Yet, its resell value can quickly drop hugely in excess of the expected value of the added maintenance costs. The same effect can turn against Tesla if the public starts believing that the hugely expensive battery might fail, even if it doesn't happen often.
Two other considerations
If we believe the batteries might last as much as one expects a regular auto to last without major surgery, one has to consider the chance that Tesla might actually revolutionize the auto sector. We know for a fact that Tesla might be about to present a competing product at about the price of a BMW Series 3. Such could conceivably multiply the market the Tesla S addresses by several times over.
Against this backdrop, and in a market pumped up by Bernanke, it's thus hard to understand how 27.9% of Tesla's outstanding stock, and as much as 64% of its free float, can presently be sold short. Stocks seen as revolutionary but with potentially worse economics - such as Salesforce.com (CRM) or Netflix (NFLX) - command market capitalizations that are 2.3 to 5.9 times larger than Tesla's. It would seem that the risk of being short against such a possibly world-changing enterprise at just $4.3 billion in market cap would be rather reckless.
Even though I still believe some of the characteristics of electric vehicles, such as the need for special care and the potentially expensive battery switch, make them rather niche, the arguments from the long side have significantly swayed my opinion.
I now also believe that between the possibility that battery tech has evolved enough (and will keep evolving); the fact that Tesla will probably present a lower-end model able to compete with the BMW Series 3 on purchase cost; the possibility that Tesla might indeed end up being world-changing and its huge short interest base … taking into account all these facts, I believe Testa is not a short, and I understand those who might actually think of going long it.
Finally, a small worry comes from the fact that my first article drew so much in terms of a reaction. That could mean the long trade is crowded. It evoked feelings of Apple (AAPL) when trading near its top. Since some of those commenting were Tesla owners, perhaps it also just conveys a loyal fan base, but still care might be warranted because of this.