Tesla's Elon Musk: If It Flies, Drives, Or Electrifies, Lease It

Jan.17.14 | About: Tesla Motors (TSLA)

We have been watching Elon Musk here in Norway for quite some time. If you don't know it, Tesla Motor's (NASDAQ:TSLA) very sleek Tesla S is selling like hotcakes here. There are some interesting paradoxes that exist in our oil, tech savvy town named Stavanger that makes some residents scratch their heads and wonder why this car is so popular. Stavanger is like Houston Texas in terms of its oil engineering expertise and capital deployment prowess primarily fueled by Norway's oil wealth. Many also don't know that Norway is the 4th richest country in the world according to its "GDP at Purchasing Power Parity per capita (NYSE:PPP)" for 2013 behind Qatar, Luxembourg and Singapore. This also is primarily attributed to Norway's oil industry. Isn't it ironic that a country with so much depending on oil is in love with the Tesla?

The popularity of the Tesla S is nicely described by Danny King who wrote for green.autoblog.com in October 2013 and is summed up in this excerpt:

"It's not just the best-selling electric vehicle. It's not just the best-selling green car. Nope, the Tesla Model SEV managed to hit the top of Norway's list of all vehicle sales in September, Agence France-Presse reports, citing Norwegian research firm Opplysningsraadet for Veitrafikken (OFV).

So the phenomena have been widely reported but the reasons have more to do with the fringe benefits a Norwegian gets when they drive a Tesla. It is important to note that these benefits were developed for all electrical vehicles aka 'EV', not just Teslas. 1. They don't have to pay the VAT on the purchase of the vehicle which is 20%. 2. EVs can travel in special lanes on major highways dedicated to taxis and busses which are often not jammed with traffic. 3. Scarce, strategically located parking spaces are not a problem with EVs because they have a priority over normal cars in key parking situations. 4. EVs travel 'toll free' on toll roads, so the "easy Pass" comes free. 5. Probably the most important factor for Tesla's popularity is the high price of fossil fuel in Norway, despite it being one of the largest oil producing nations and a top tier exporter. Norway does not pass along cheap fuel to its people like Saudia Arabia does for example. Gas and diesel fuel prices range between 13,5 kr to 15,5 kr per liter or well over $10 per gallon. Electricity is far cheaper in Norway especially because the country is a leader in hydroelectric power production. According to wikipedia:

Of the total production in 2011 of 128 TWh, 122 TWh was from hydroelectric plants, 4 795 GWh was from thermal power, and 1 283 GWh was wind generated.[1] In same year, the total consumption was 114 TWh.[1]

The annual electricity consumption was about 26-27 MWh per inhabitant during 2004-2009 when the European union (EU15) average in 2008 was 7.4 MWh. Norway's consumption of electricity was over three times higher per person compared to the EU 15 average in 2008. The domestic electricity supply promotes use of electricity.[2]

Apparently, Norwegians like to use electricity primarily because its inexpensive. The electric rates charged by Lyse in Stavanger are drastically lower than those charged on the East coast of the United States. Lyse, an electric provider in Norway charges approximately $.0544 per kWh, compared to $.13-.15 in New Jersey.

But the real advantage to Tesla in Norway may still be on the horizon. We are helping a few entrepreneurs here in Stavanger to start a flexible leasing program for Tesla autos. Leasing is not used as extensively in Norway. We think, like Elon Musk, that making leases more cost effective with added duration flexibility will make the overall market-share for Tesla in Norway and elsewhere continue to rise. According to the recent S-1 filing for an IPO OF SANTANDER CONSUMER HOLDINGS USA {proposed ticker 'SC'} in the U.S., we see the importance of SC's contractual ties to Chrysler as a major component to its potential value. Here is a quote from the "risk factor" portion of the S-1 cited above:

Our recent agreement with Chrysler may not result in currently anticipated levels of growth and is subject to certain performance conditions that could result in termination of the agreement. The loans and leases originated through Chrysler Capital are expected to provide us with the majority of our projected growth over the next several years. If we are unable to realize the expected benefits of our relationship with Chrysler, or if our agreement with Chrysler were to terminate for failure to meet certain milestones and performance metrics, our future growth would be negatively impacted.

We certainly have not seen this sort of creative finance activity in the EV space as of yet. But, we are seeing entrepreneurs getting involved in this creative financial endeavor in Norway. Elon Musk has predicted the next growth wave in the EV market will come from creative financing making 'total or true cost of ownership' aka 'TCO' much more affordable. This was demonstrated by Tesla's creative financing plan announced in April 2013 which Elon Musk explained in this Bloomberg interview:

Leasing, as it turns out, seems to be the magic formula behind Solar City's (NASDAQ:SCTY) meteoric rise of late. As this FastCompany article aptly pointed out in November 2013:

As utilities can now say they have a captive pool of customers who aren't about to cancel their energy service, solar installers want to able to prove they have a safe roster of contracts with residential and commercial owners. In this model, the customers pay to buy energy from solar modules on their roofs, while they get the peace of mind of someone else looking after them.

Elon Musk is a creative man. Financing today is available at today's historically low rates to companies with diversified and stable cash flow.We can see this with the interest in the Santander Consumer Holdings IPO mentioned above. We think Mr. Musk is certain to find a leasing component in his SpaceX space travel venture as well. In the meantime, Norwegians are very receptive to the EV concept, and this will only increase in our opinion when more money floods into creative leasing options for Tesla vehicles. Here is a picture of customers kicking the tires of a Tesla S in a popular shopping mall in Stavanger named AMFI: Click to enlarge

We believe TSLA is a good long term holding at the price levels today while they continue to increase their market-share in Europe and continue their current expansion into Asia.

Disclosure: I am long TSLA, SCTY, . 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.