Tesla: Right Hire, Wrong Time

| About: Tesla Motors (TSLA)

Tesla's (NASDAQ:TSLA) decision to hire Apple (NASDAQ:AAPL) VP of Mac hardware Doug Field to lead vehicle development is right hire at the wrong time. It is the right hire, because Mr. Field will bring to the company the wealth of experience and expertise accumulated during his tenure in the world's most advanced technology company. It is the wrong time, because the company's problem isn't so much in convincing potential customers about its innovative product capabilities, its Model S has already topped Consumer Reports, but execution. Tesla must keep up the buzz, and grow into a major company as Ford (NYSE:F) did at the turn of the 20th century.

Simply put, Tesla needs someone to help company sales reach the "tipping point," the moment its products reach a critical mass of consumers, as described in the marketing literature by the Rogers Curve. Everett Rogers argues that the spread of new products is a multi-stage process that advances in five stages: Awareness, interest, evaluation, trial and adoption. In the beginning, product awareness is slow as innovators, a small consumer group, adopt the product. Then, the rate of diffusion picks up as consumers in contact with those consumers adopt, and so on and so forth, until the innovation possibly spreads throughout the network, also reaching the more conservative consumers (or "followers"). That is the point Coburn calls "the point of idiocy," where peer pressure has a catalytic effect on individual consumer decision-making, far stronger than conventional advertising.

Eventually, the diffusion reaches the early and the late majority, creating a cascade, galloping sales growth, which is associated with the commercial success of the new product. This means that products that eventually cross the tipping point follow the S-shaped or sigmoid curve, as observed in the diffusion of new durable products, whereby demand begins with a small group of consumers understanding the merits of adoption, and spreads to larger and larger groups until it reaches cascade.

For Tesla's products to reach cascade takes three things. First, the price of its S model must fall well below the $90,000-mark to comparable levels with other luxury cars like BMW, Audi, Lexus, and so on, as was the case with Ford's T-model at the turn of the 20th century; early and late majority is sensitive to product pricing. Second, the battery life must be extended so it can appeal to a larger number of consumers. Third, the company must set up dealerships around the country to address service issues; that's mandatory in some states.

Can a former Apple VP of product design do all these things?

It is too early to say, but designing better cars, it doesn't help sales reach cascade, unless all other pieces of the puzzle fall in place.

What should investors do in the meantime? Buy the stock on pullbacks or look for a better value in established companies like Ford that has been turning the corner lately?

It depends on the investment horizon and style of each individual investor. Short-term oriented investors may want to trade Tesla's stock on the long side, as it is heavily shorted. Long-term growth oriented investors are also better off with Tesla's stock. Long-term value-oriented investors are better off with Ford's stock, which reported robust Q3 earnings this morning.


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Source: Yahoo Finance

Disclosure: I am short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: with options. Long on F.