Tesla May Be Out Of Gas And Electricity

| About: Tesla Motors (TSLA)

On October 18th, we took a look at Tesla Motors (NASDAQ:TSLA) which put a few people on edge with our negative outlook. In that short time since our article was published the stock has quickly fallen over 32%.

Killing the messenger is a time-honored tradition, so it's not surprising that people found some of the hard facts on Tesla difficult to digest. However, this auto manufacture has taken on a big task at a time when established auto manufacturers are using their own knowledge and expertise to drive sales of alternative energy vehicles. Tesla is going to have to out-think, out-market and out-produce these companies if they hope to make significant gains in the future.

Tesla Takes Flight
Back in 2003, the Palo Alto company was able to take advantage of a wave of consumer sentiment craving energy efficiency in both autos and other products. All eyes focused on the Silicon Valley engineers. Their Tesla Roadster was the first vehicle to use lithium-ion batteries and had a range of over 200 miles. Although any new auto manufacturer is swimming against a tide of consumer history, Tesla had the advantage of a public clamoring for change in their automobile choices. Government backing and energetic executive began to bring consumers to Tesla's dealerships at malls in California. The model X and model S followed. Tesla sought ways to bring more consumers into the fold with convenient charging stations in local communities and a convenient battery swapping system.

Current Results
Third quarter 2013 estimates were not only met, they were exceeded. The company delivered 5,500 vehicles, 1000 to Europe. Profit was up $.12 per share, slightly above estimate of $.11. Although CEO Elon Musk states the company can deliver 20,000 cars customers per year, he seems to have concerns about over-selling what they cannot deliver.

Production problems still dog the company, in spite of recent efforts to manage these issues. Part of their delivery problem is the scarcity of lithium-ion battery cells used in the Model S. The company's recent deal with Panasonic to supply the battery should go a long way toward relieving this supply pinch-point. Another problem is that it is laboring under competition from a deluge of other vehicles that are making its acceptance more difficult. What Tesla will have to do in these circumstances is maximize its niche market until the public becomes comfortable with the buying the Tesla name.

Questions About Battery Fires
Recent media stories about battery fires have given consumers pause about the design of Tesla vehicles. The fire at the Model S plant that injured three workers is particularly troubling, and caused Tesla stock to recently drop 10 percent. The National Highway Safety Administration has announced a formal probe of the engine fire issue. This was on the heels of two other fires in which the car's undercarriage hit debris in the road and ignited. CEO Elon Musk has welcomed the investigation to try to resolve any questions about these fires.

The Challenge
Whether in the western world or Asian countries, the Tesla has had to distinguish itself among a host of other choices from well-known brands that provide a measure of comfort for consumers venturing into new automobile technologies. Also, these competitors have well-established supply chains that make it easier for them to deliver vehicles to their customers in high volume. This disparity is likely to increase rather than decrease for Tesla. The problem of engine fires may require re-design issues that cause a drag on delivery as well as Tesla's desire to establish its reliability.

Outlook Going Forward

The air has come out of the marketing balloon, and all parties have to stand back and give a hard look at the realities of the new technology auto market. Guidance for the stock's future has been lean, and analysts are trimming back expectations for the 4th quarter.


Our advice is the same as it was a month ago. Take profits in Tesla and buy the car this weekend.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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