Tesla (NASDAQ:TSLA) may very well be a game changer. It has actually figured out a way to mass-produce electric vehicles that are affordable (somewhat), and have a good range. The long-range 85kW battery option gives the Model S a usable range of 265 miles. However, there are several negative catalysts working against the company right now that cannot be ignored.
Elon Musk, who is one of the most ambitious CEOs I have ever heard of, had no choice but to lower his revenue guidance due to a weaker rollout of the company's new Model S than he had anticipated. The company wanted to deliver 5000 cars by the end of 2012. As of the end of August, only 74 cars had been delivered, at a production rate of 2-3 cars per day. The company's goal is to increase the production rate of the cars to 80 per day, a staggering increase over the current levels. However, as a result of current delays, the company says it will produce up to 3250 cars by the end of 2012 (http://www.cnbc.com/id/49170612). Given the idealist nature of the CEO, I believe that number to still be a bit inflated, so expect somewhere in the low 2000s as a realistic goal for this year. An interesting note, however, is that even with the backlog; Tesla already has well over 10,000 reservations for the Model S currently on the book, which should keep the company busy for the next few years as production ramps up.
Also working against Tesla is its full use of the $465 million DOE loan available to them. In order to meet financial obligations, the company has decided to issue an additional 4.34 million shares, recently priced at $28.50 per share. This should generate over $123 million in capital for the company, however it will dilute the shares a bit.
Even with these short-term hiccups, this is still a company of the future. Tesla's cars are indeed a game-changer, and once it figures out production issues, there is no telling how much of the market can be overtaken by electric vehicles.
Also working in favor of electric vehicles (and particularly Tesla) in the long term is the plan to install the company's "supercharger" charging stations. By October, the first five supercharger stations will be operational along several of California's most traveled roads. These stations are solar powered charging bays that, according to Tesla, can add 150-160 miles of range to the battery during just a 30 minute stop, working almost five times as fast as the home charger included with the cars. Once this network begins to expand, offering drivers completely free "fill-ups," the benefits of electric cars will begin to convert those drivers who fear a high household electric bill as a by-product of an electric car.
I think Tesla is definitely worth owning, and is truly a company of the future, much as Apple (NASDAQ:AAPL) was 20 years ago and Google (NASDAQ:GOOG) was in the late 1990s. I remember being told it was crazy for any search engine to try to compete with Excite or Lycos (remember them?). However, the negative factors working against Tesla right now should prevent any significant price breakouts in the near future, and may even cause the stock to fall. Because of this, I want to sell some puts, so I'll hopefully have the opportunity to buy the stock cheaper, and if the stock goes up, I've still collected a nice premium.
Tesla options are trading with enormous volatility, making a put sale an excellent way to protect from drops in the share price. My favorite trade is to sell the January 2014 $23 puts for $6.40. If Tesla is less than $23 at expiration, I buy the stock for that price, but because of the options premium collected, my cost basis in the stock is only $16.60, which is 43.7% less than the stock currently trades for. If the price doesn't fall, you keep the options premium, which represents a gain of 27.8% in about 16 months. Given the amount of sales already on the books at Tesla just waiting to be built, I believe it to be very unlikely that Tesla will be under $16.60 anytime in the next 18 months, which is the only scenario that this trade would lose money. This is a fabulous risk/reward scenario that will allow you to get into one of the great companies of tomorrow for cheap, or at least put some money in your pocket.