Hasty climbers have sudden falls...
Tesla's (NASDAQ:TSLA) long-anticipated electric car SuperCharger announcement came and went last week, and the stock rolled over on Friday on a classic "sell-the-news" response. Most market participants already surmised that the government-subsidized electric vehicle company's announcement would be about faster EV charging.
Some market participants speculated it would even be a 2-minute battery-swapping scheme, which would finally resolve one of the key primary objections to EV technology (long charge time). That would have been more cutting edge, but it wasn't the case.
Evidently market players didn't view it as much of an upside surprise for Musk to announce that the company will expand their supercharger network from 8 stations currently to allow an east-to-west U.S. travel corridor and rapidly increase the number of charging stations.
The much-vaunted announcement had already been postponed twice (most likely to generate a perpetual buzz to help support TSLA's share price before and after Musk announced a secondary share offering). Ironically, the secondary announcement came a week or so after he had said "we don't have any plans right now to raise funding."
THE BIG SURPRISE: SuperExpense for SuperChargers
What will be a surprise coming from last week's announcement is that investors will eventually realize that Tesla's SuperCharger infrastructure build-out is going to be SuperExpensive when analysts rework their models to account for ALL costs associated with providing "free" charge-ups and building the network to make it viable.
Not only is TSLA currently a car manufacturer, but they are now becoming an "infrastructure builder."
Smart money may have been quick to realize the foregoing new cost concerns. After the Supercharger announcement on Thursday (5/30/13), the stock reacted in classic "buy the rumor, sell the news" style. The stock lost $7.17 to close at $97.76 - a 6.85% loss on Friday. Selling spiraled downward shortly after the buzz died down from Elon Musk's morning interview on CNBC to further market his Supercharger concept to the masses.
Unfortunately numerous TSLA investors "bought the rumor" of the fabled SuperCharger announcement, as share prices erupted to as high as $114.90 last week.
For those continuing to buy TSLA shares after the announcement, caution might be advised, given that Elon Musk glossed over some harsh realities about the impact the SuperCharger network will have on TSLA's profitability. After all, there will be major build-out costs, ongoing charging station and solar maintenance costs and costs for providing "free" electricity to Tesla owners for life-of-car.
While the announcement does indeed seem visionary, analysts who have to focus on nuts and bolts as well as numbers, must now factor in the reality that Tesla is not only manufacturing cars, but it's also building its own proprietary infrastructure at a sizeable expense.
Here are some of the inconvenient truths that were not made clear in Musk's conference call with CNBC to announce the Supercharger:
- FULL CHARGE-UP TIME IS ACTUALLY MORE THAN 20 MINUTES: Elon Musk's Supercharger discussion highlighted a "20-minute electric vehicle charge-up time," but didn't stress the fact that the touted 20 minute charge is only for a 50% charge-up!! For a full charge, one might expect a 40-minute wait while you're driving your Model S on a road-trip - still a great inconvenience by any standard.
That the "20 minute charge-up" is actually only a 50% charge is appropriately disclosed here on the company's webpage, but doesn't it seem a tad disingenuous to not put the FULL 100% charge time more prominently in the headline for the sake of transparency?
- SUPERCHARGER NETWORK BUILDOUT WILL BE SUPEREXPENSIVE: In his conference call Thursday morning, Elon Musk mentioned the forthcoming capital expense needed to build each Supercharger station -- with solar generation -- at about $300K, but conveniently ignored the fact that Tesla will also have to buy or lease land for each station. Typical suitable locations lease for about $10K/month. Not to mention that the required solar photovoltaic footprint needed to generate enough power for supercharging will need to be orders of magnitude larger than the tiny carport roof at each supercharger station. So add more lease/buy costs for photovoltaic solar installations nearby or elsewhere in the grid.
- SUPERCHARGER NETWORK COSTS WILL SUBSTANTIALLY CHANGE ANALYSTS MODELS: In all fairness to the investment community, Elon Musk should have suggested (or even hinted) to the investment community during his announcement on Thursday May 30th that they will need to make substantial adjustments to prior earnings guidance, because the cost to build and support this ambitious network will have a huge impact on the company's profitability going forward.
Adding the cost to build their Supercharger Network stations alone could cause Tesla to incur perhaps $30 Million more expense this year - costs that are probably not factored in analyst models ($300K per station) X (say 100 Stations this year per TSLA's "Winter 2013" map) = $30M.
Thus, if we subtract this incremental $30M expense off the top line, a simple back-of-the-envelope calculation would put current FY 2013 EPS estimates at a loss of about -$0.26/share (-30M/115M Shares). Consensus estimates are currently for a breakeven FY 2013, but with the new "SuperExpenses," breakeven is now not looking likely.
Note that the foregoing $30M supercharger buildout estimate does not include the cost to rent/buy land for each charging station and ongoing operating costs for periodically cleaning the solar panels plus servicing the charging stations.
Analysts will most certainly be revising their estimates to show that with the Supercharger network costs, the "profitable" quarter just announced may turn out to be an anomaly.
In other words, the company may still not be profitable for well more than a year from now.
- BATTERY REPLACEMENT COST NEARLY RIVALS COST OF GAS OVER TIME: The company often boasts about the savings in gas costs for Tesla drivers, but conveniently omits the fact that the COSTLY eventual battery replacement should be amortized for a more fair comparison of internal combustion [ICE] vehicles vs. electric vehicles.
Given that most Tesla car batteries will cost $10,000-$12,000 to replace in about 8 years, that's $1,250-$1500/year amortized (or $100-$125/month). If the average driver uses 486 gallons of gasoline per year or about 40 gallons per month at $4.00/gallon, that's $160/month average gas cost, so we see the amortized Electric Vehicle Battery replacement cost on a per-month basis is almost equal to the average per-month cost of the gas used by the gas-powered vehicle owners.
- "FREE" FOR LIFE-OF-CAR CHARGE-UPS WILL REQUIRE TESLA TO PAY FOR GRID ELECTRICITY: Analysts will need to add the cost of the "FREE" electricity for lifetime car charge-ups when solar isn't sufficient in winter (or cloudy weather) in the Midwest, northwest, northeast to TSLA's expense run rate. Such costs will not be insignificant. Or it will have to trade solar-generated electricity from other sites or from more sunny days, which had a material cost to TSLA (or SolarCity for example) to produce.
- TESLA SUPERCHARGER STATION SOLAR PANELS SHOWN IN PICTURES ARE WAY TOO SMALL TO GENERATE SIGNIFICANT ELECTRICITY: Solar panels on each carport present a false "green" illusion that the carport roof is generating much of the electricity going into your car. Note the picture on the SuperCharger web page showing a 6-car Tesla SuperCharge station with a solar-paneled carport roof that measures approximately 25' X 78' feet. How much electricity can this solar footprint honestly produce in a given day -- relative to the 120Kw demands for each charger for each of those 6 vehicles?
Here are the solar panel calculations: At about (78' long X 25' wide), the Supercharger carport roof panels have about 2000 Sqft total photovoltaics. Solar power generation on a good day is only about 10-13 WATTS electricity per Sqft. So the carport roof shown on the Tesla webpage might generate 2000 Sqft X 13 watts = 26,000 Watts or 26 Kilowatts. Suppose you had 8 hours of IDEAL photovoltaic generation on a summer day, the carport solar generation would be about (26 Kilowatts X 8 hrs = 208 Kilowatt hours) in day. In winter, you get a fraction of that or none on a dark cloudy day.
Compare that with the 120Kw for the 40 minutes needed to fully recharge each Tesla car in each slot (120Kw X 40/60 = 80Kilowatt Hours). So if you have 8 hours of IDEAL photovoltaic generation (not likely), each SuperCharger carport panels might generate enough power at best to charge perhaps 2.5 cars per day. The rest of the juice has to come from the grid.
In other words, the panels on top of the Tesla Supercharger stations are essentially a cool gimmick to charge up environmental egos by giving them the illusion that their EV power was effortlessly generated on-site and is just so "free," when in fact, the vast majority of the power comes off the grid from somewhere else.
In all fairness to TSLA, perhaps they will have to strike a deal with other building owners to rent a solar generation footprint on their rooftops. Or they will have to buy/rent land and install solar panels (more costs incurred of course). Or they will strike a deal with Musk's Solarcity (NASDAQ:SCTY) venture to use excess power credits that their clients feed into the grid. And some of the cost may be paid up-front by Tesla buyers as part of an extra package, which is essentially like prepaying for fuel.
In any case, the inability of solar photovoltaics to generate consistent electricity to charge electric vehicles is of concern because Musk is guaranteeing life-of-car "Free" energy in various climates and in all seasons for the life of the cars.
Is the cost for TSLA to buy large amounts of electricity factored in analysts models? We'll see in the coming weeks/months and the big surprises may come as soon as the next TSLA earnings report/guidance.
In summary, Tesla's ambitious SuperCharger infrastructure build-out will have substantial impact on their profitability hereafter. And no doubt it will most likely push hopes of TSLA profitability much farther down the yellow-brick road.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in PCLN, TSLA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author makes no warrant for the accuracy of the content herein other than the links provided to traditional online sources of information for verification purposes. Additionally, investors shall not take any comments stated herein as advice to buy or sell any equities and if investors do so, they acknowledge that they have done their own proper due diligence and proceed at their own risk.