In August, I wrote an article making two buy recommendations in the automotive industry. It turns out I was half right. As the S&P 500 increased by 7 percent since I wrote the article, Ford (NYSE:F) shares increased by 0.2 percent (which could be considered a win when compared to GM's performance) and Tesla (NASDAQ:TSLA) shares have increased by 30 percent, with no major news from the company. Although the reason why Tesla's stock has performed so well is very debatable, I make the case that consumers are beginning to embrace the future of the electric car.
Although the electric car being a commonplace consumer good is still years from happening, I believe that the prospects of the industry are very undervalued in a "green economy", especially when compared to solar energy. Tesla as a company is not expected to have positive earnings for some time, but with revenue expected to eclipse $500 million in 2012, the company appears to be at the beginning of becoming a major player in a budding industry. Tesla's line of cars is still too expensive for most American consumers, but with the Model S selling at $57,400, the company's cars are beginning to become more affordable. I expect electric car costs to closely mirror consumer electronics costs in that as the quality improves, the price will decrease.
The most famous names in the electric car market right now are the Nissan Leaf and the Chevy Volt. Both cars have received generally positive reviews so far, and sales have been pretty strong considering that these are the first major electric cars on the US market. The Volt has received negative publicity over the past week with reports that its batteries can catch on fire. However, only 2 Volt owners took loaner cars after the announcement and the battery in the crash test caught on fire 7 days after the crash. GM claims that the car is safe and that the fire problem is an issue specific to the Volt and is not indicative of all electric cars.
As of November 30th, GM sold 6,142 Chevy Volts and Nissan has sold 8,720 Leafs. With Volts selling for about $40,000 and Leafs selling for about $32,700, these two cars have seen about $520 million in revenue, which is a lot compared to Tesla's expected $203 million in revenue for 2011. With GM expecting about $150 billion in revenue for 2011 and Nissan expecting $123 billion in revenue for fiscal 2011, we can see that electric cars have very little effect on the giant automakers' financial statements. However, the electric car market is expected to have huge growth in the next few years. According to energy.gov, there are 1932 electric car charging stations in the United States, with about 200 more planned to open soon. There are only 10 states left that do not have charging stations and even oil capital Texas has 177 charging stations. As charging stations numbers move closer to gas station numbers, having an electric car will become more practical and be a viable option for more consumers.
I believe that going long Tesla is the best direction to take for going long on the electric car market. General Motors (NYSE:GM) and Nissan (OTCPK:NSANY) have too much exposure to the rest of the car industry and when looking at other innovative industries like cloud computing, conglomerates tend to not reap the stock benefits that specialist companies like Tesla will have. For example, Google (NASDAQ:GOOG) has a social networking business, a daily deals business, and a large investment in cloud computing, but the stock still does not have a very high valuation. I believe that Tesla will eventually come out with affordable cars that many more consumers can buy and the company will be among the automotive leaders in about 10 years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.