Tesla Motors, Inc (TSLA) is a designer and manufacturer of electric vehicles with enormous potential starting mid 2012 when it launches sales of its Model S. Many investors are shorting Tesla, electric vehicles, and green companies in general, however failures within the green industry will not be knocking on Tesla's door.
Tesla's Model S is unlike the competing Nissan Leaf (NSANY.PK), Chevy Volt (GM), and Fisker Karma. Investors have bet big that the Model S will flop just as its competition has. These offerings are hardly comparable.
The Nissan Leaf is a cute car design that visually appeals to those seeking to be green and make that their statement. The Leaf sells for $35,200 ($27,700 after $7,500 government rebate), is 100% electric, has a range of 47 to 105 miles per charge, 0-60 in about 10 seconds, and a top speed of 94. The 47-mile range is a compelling reason not to buy. It's a great opportunity for a buyer to go green, but the car's performance or styling isn't comparable to gasoline models of the same price. For example, the Audi A3 can reach 130mph, accelerate 0-60 in 6.9 seconds, has a physique that appeals to a broader population and has unlimited range. The Leaf has poor sales because the only reason to buy it is the green factor. There are a great deal of competitors at that same price point with more compelling features than the Nissan Leaf.
The Chevy Volt has a neutral physique with a broader appeal than the Audi A3. The Chevy Volt is a hybrid, with a low 35-mile electric range. Price: $39,145, or $31,645 after rebate. Acceleration 0-60 in 9.2 seconds and maximum speed is 100 mph. The gas engine gives the car unlimited range. Again, the only reason to buy is the green factor. The BMW 128i is an example of a superior alternative in performance and will save you $550.
The Fisker Karma is similarly not compelling. The Fisker Karma is a hybrid car priced at $102,000 plus, with 32 miles of electric range and a 20 mpg efficiency running on gasoline, meaning it isn't "green." Sure, it may be relatively green compared to other sports cars, but its acceleration is 0-60 5.9 seconds. Does that make it a sports car or a sporty looking sedan? This company has taken American subsidies during its struggle with production only to create jobs abroad. The company promised the Karma would be available in 2009, but was unable to deliver for several years before selling its first car to Leonardo DiCaprio in August 2011. Now Fisker has produced a whopping 200 cars which were recently recalled.
There is no doubt the electric cars will win out in the end. There are limiting factors on the viability of today's electric models, however as battery technology improves their range per charge will extend into the thousands of miles. Which company is poised to capitalize on this? When will they succeed in replacing gasoline? The prior mentioned cars are terrific engineering feats. The problem is their gasoline counterparts are better engineered. Electric must be better than gasoline cars for reasons other than the "green" factor if they are to sell. Simply being good won't cut it. Electric cars won't win if they are too similar to gasoline cars; they'll win when they are better.
The Tesla Model S begins this wave of the future. The base price is $57,400 or $49,900 after rebate. Its range is 160 miles and can be upgraded to extend to 300 miles. At this point consumers no longer worry about having too short of range per charge. It is the tipping point where electric technology is more compelling than gasoline because you never have to wait at a gas station. Many may still want a second gasoline car for longer trips. This limits purchases to multi-car buyers or multi-car households. Given Tesla's intended production of just 20,000 cars per year, this should not prove insurmountable. The Model S acceleration is 0-60 in 6.5 seconds. Compare it to the BMW 528i at $49,000 with acceleration 0-60 in 6.9 seconds and efficiency of 18.4 mpg. Tesla's Model S is the first mass production electric car to beat its competition on performance at the same price point. The exterior design is sleek to neutral with broad appeal and the interior is extraordinarily highlighted by a 17 inch console, likened to a large iPad.
The car is compelling, but is the company at large compelling?
Will the company meet the 2012 deadline for producing the Model S? The Fisker couldn't. Tesla has experience in launching a car with their limited run Roadster. CEO Elon Musk also has experience meeting deadlines in launching rockets into outer space, an impressive feat. The company claims to be on schedule and has never moved the launch date. Management has been honest in the past. Tesla is also not suffering from the same liquidity deficiency that might have inspired the Fisker Karma to give overly optimistic projections. It is certainly possible that the challenging endeavor of mass producing a vehicle creates delays, but there are reasons to believe it won't. If delays do occur, the company has cash to see it through. Cash and Short Term Securities total $278,388,000. For the 9 months ended September 30, 2011, Tesla recorded a net loss of $172,922,000. In the worst case scenario that Tesla fails and runs dry, it has shown the ability to raise cash quickly.
Will other larger companies imitate Tesla and drive the company out of the market it created? Tesla owns the battery technology of stringing together computer batteries to form the battery for its car. The technology has proven its viability in the Tesla Roadster and has sold battery packs to major auto manufacturers for use in the Smart Car (Daimler (DDAIF.PK)) and Toyota's (TM) Rav4. Competing automakers with be required to invest significant sums of money into improving their battery technology or purchase from Tesla. Tesla will benefit from the investments made by laptop battery manufacturers.
Tesla is poised to capitalize on its Model S with ownership of its distribution. It has hired the man behind the Apple (AAPL) stores to create a unique experience to buying cars. Rather than large expensive lots filled with cars, the small stores play the roll of educating the consumer and aiding them in ordering a custom car. This adds a compelling offer to the consumer and a means for Tesla to cut out the middle man.
Tesla has not released the Model S. It may not be obvious to consumers, but those in the industry understand that the race is on to dethrone Tesla as the leader in electric car technology and soon electric car production.
When the most compelling technologies in an industry are centered in one company, that company has a bright future. My personal prediction is high, so I will simply say, TSLA is a buy.
Disclosure: I am long TSLA.