Many critics of Tesla Motors, Inc. (TSLA) have continued to harp on the idea that the company's financial results are artificial and that it would eventually fall into financial straits as rival carmaker Fisker Automotive (not publicly traded, but rather VC-backed) has in recent years (National Review). But let's get one thing straight: Tesla is a very different company than Fisker and has very different leadership.
Silicon Valley-based automaker, Tesla, currently has one model available for purchase: the stunning Model S. The Model S retails for roughly $70,000 and is only the second car ever to receive a score of 99 from Consumer Reports [the only other is the 2009 Lexus LS430 (TM)]. In fact the car scored a full 16 points better than the Porsche Panamera Hybrid (OTCQX:VLKAY) - the Model S' closest competitor in terms of price range and features (and also a stated benchmark for the Model S). The only cited weakness, and the only reason the car did not receive a perfect score, is concern for the capability of long-distance travel on one full charge of its battery. However, since the Model S was reviewed by Consumer Reports in early May, CEO, Elon Musk has announced plans to significantly upgrade the company's infrastructure and network of "Superchargers," which will enable drivers to drive across the country without the fear of running out of power.
Tesla vs. Fisker: Demand
One of the differentiating factors between Tesla and Fisker is demand. The Model S is a beautiful specimen of power and elegance, and has certainly caught the eye of the public. Since the first delivery of the Model S almost a year ago to the day, the company has sold 7,550 units and has plans to sell almost 21,000 in 2013 alone. As of December 31 of 2012, there were 15,000 standing reservations for the car, meaning that, if there were no new orders, the company would still have 7,450 units in its backlog. During the first quarter, the Model S outsold all other electric vehicles in the United States, including the ever-popular Chevy Volt (GM) and Nissan Leaf (OTCPK:NSANY) models. Tesla has been rushing to build units as quickly as possible to meet expected orders of up to 30,000 units (personal expectations of CEO Elon Musk). The company claims it can currently produce 20,000 units per year (Barron's).
On the other hand, after the purchase of their new Boxwood Road Plant (from GM), Fisker claims to be able to produce up to 100,000 units per year. The interesting conundrum here is that the company can produce 100,000 units per year, but only 1,800 Karma models had been sold by the end of 2012. While Tesla is attempting to keep up with intense demand for their Model S, Fisker is struggling to find buyers to fill the excess vehicles they have already produced.
Model S is a Better Car than the Karma
The Model S continues to wow drivers worldwide. It has received praise from nearly every single person that has driven it, and has really stirred up some serious demand in the marketplace. The company has developed its own lithium-ion batteries that it can produce at a huge discount to what Fisker was paying ($1,500 per kilowatt/hr. vs. $430 per kilowatt/hr.). This technology also enables the Model S to travel up to 310 miles on a single charge, while the Karma can only travel 30 miles when powered by battery alone. While both cars have just over 400 hp, the Model S is a much quicker vehicle. The Model S can accelerate from 0-60 MPH in just 4.4 seconds, while the much heavier (+1,000 lbs) Karma takes 6.3 seconds.
Reliability has also been an issue for Fisker. In fact, during the Consumer Reports road test of the Karma, the car broke down almost instantly. A spokesman from Consumer Reports said, "We buy about 80 cars a year and this is the first time in memory that we have had a car that is undriveable before it has finished our check-in process" (Consumer Reports). Overall the Model S scored a 99, while the Karma scored only a 56, a failing grade.
Fisker's Deteriorating Supply Chain and Financial Fallout
While Tesla continues to delve into infrastructural investments that will drive sales and consumer satisfaction levels, Fisker Automotive has slowly watched their supply chain dissolve into something of a memory. The company originally planned to begin selling the Karma in the USA in 2009, though continuous delays prevented production until late 2011. Then, during the summer of last year production yet again stopped as the company was forced to seek more capital investment. Most recently A123 Systems, Fisker's battery producer filed for bankruptcy protection following a recall of the battery systems that power the Karma (AutoBlog). Following this bankruptcy, the company's founder and CEO Henrik Fisker was forced to resign, production has been once again halted, and the production of the company's second model, the Fisker Atlantic has ceased (CNN). After the resignation of Henrik Fisker, the company's board elected to hire Huron Consultants to run the company, who recently furloughed the company's workforce (Bloomberg). Finally, two months ago (April 15th) the company officially laid off 75% of its workforce, leaving only 40 employees remaining (ABC).
As Fisker seems to be gasping for its last few breaths of air, Tesla is expanding its supply chain and its production capacity/efficiency. Tesla also produces its own technology (batteries and their own electric motor system), rather than relying on a potentially dangerous supply chain.
Monthly Cost of Ownership
Based on a 36 month lease, with a down payment of 15%, an individual can buy a Model S (base model) for $544 per month after all electric vehicle incentives are realized. Also, if you plan to drive this car to work, you can own for it just $287/month ($1755/month+ $18 for down payment after EV incentives-$261 for gas-$256 for business tax benefit-$971/month due to guaranteed residual value). This is significantly lower than the cost of owning a Fisker at $2,444 per month as Fisker owners miss out on significant tax benefits due to the fact that the Karma is not a fully electric vehicle, but rather a gas/electric hybrid. Therefore, while both cars are considered luxury, high-end vehicles, the Tesla Model S is significantly more affordable and thus more likely to gain traction in a competitive auto market.
Tesla Motors, Inc. also dominates Fisker Automotive in terms of customer programs. Tesla continues to add value for owners and incentivize new buyers, while looming fears of bankruptcy continue to hemorrhage sales for Fisker. Since the 2012 launch, Elon Musk has announced multiple plans to get drivers behind the wheel of a Model S such as a new "leasing program," an upgraded and extended network of "Superchargers", free-for-life charging, and a plan to guarantee the residual value of the cars.
Financial Position: Tesla is Growing
Tesla is in a hypergrowth stage now, and has big plans to expand into new segments in the coming years. The future for Tesla is exciting, and growth is ramping at tremendous rates. The company, which is now cash flow positive, has been taking aggressive measures to grow efficiency and to more effectively manage costs. With Elon Musk at the helm, the company has spent virtually zero dollars on advertising and has realized a lower raw material cost; both of which helped to pad last quarter's earnings. Gross margins have doubled over the past quarter to 17%, and according to guidance, the full year's margin should come in at roughly 25%. While the recent swing to profitability was aided in part by the one-time sale of zero emissions vehicle (ZEV) credits (totaling $85 million), the company is looking to produce a profit for the full year, and I believe that demand will significantly outpace guidance of 20,800 for 2013. I feel that Tesla will sell more like 30,000 units this year. It seems that, so far this year, the company has already produced roughly 13,000 vehicles, meaning that so far this quarter, the company could produce roughly 6,000 cars. Tesla seems rock solid. It should be of no doubt that Tesla has staying power, and will most likely be well into the black by year's end.
Department of Energy Loans
While Tesla has actually repaid their federal Department of Energy (DOE) loan 9 years ahead of schedule, Fisker has recently missed a repayment of their own DOE loan, and is now being regarded as the "next Solyndra." Tesla's early payment netted a profit of roughly $12 million for US taxpayers, according to Bloomberg, while Fisker's failure to repay has resulted in a net loss of $171 million (Institute for Energy Research), even after the Federal Government seized $21 million. Fisker Automotive initially received a guaranteed loan of $529 million, with specific targets to produce and sell a combined 86,000 vehicles by 2012. However, due to repetitive production failures, the company eventually had its loan disbursements frozen by the government in 2011 (Institute for Energy Research). If Fisker actually does dissolve, the remaining $171 million obligation could dissolve with it. Also, if Fisker falls apart, it will represent the biggest DOE loss since Solyndra.
The takeaway? Tesla is the real deal; Fisker is not. All the recent hype that Tesla may end up falling by the wayside in a Fisker-esque manner will soon subside. Elon Musk is a true visionary and renaissance man. He has a firm grasp on the marketplace and is focused wholeheartedly on creating shareholder wealth and a rock-solid customer experience. While the recent appreciation in share value may have scared many investors away from the name, shares still have room to run. Tesla's growth is very real, and even better- it's organic. I feel strongly that, in an Apple-like manner, Tesla is low-balling guidance expectations in an effort to produce hype around each earnings release. Again, while the company has stated that they will be building roughly 20,800 units this year, I feel that the number should be roughly 30,000 instead. Providing such modest guidance leaves room for Elon Musk to create hype and excitement for shareholders as he continues to roll out higher expectations throughout the year. While Tesla's valuation multiples seem outrageous, it is important to note that Tesla trades more like a tech stock than an automaker. Keep in mind that in October 2009, Yahoo! traded at a 186 P/E multiple and has since gained about 50% per share and now has a trailing P/E of 7.85.