Why Tesla Might Make It

| About: Tesla, Inc. (TSLA)
This article is now exclusive for PRO subscribers.

I will admit to having been among the skeptics when Tesla Motors (NASDAQ:TSLA) launched its line of electric vehicles a few years ago.

Visions of DeLoreans and Tuckers were dancing in my head. It was proven that you can't compete with the Big Three, and even they could not compete against Japanese or Korean makers. How could a single American entrepreneur hope to have a chance?

While the success of the venture is far from certain, and the shares are bouncier than an old jalopy, there are growing indications that something like success might be achievable:

  • Tesla seems to have gotten through the production of its first car, the Roadster, with just 200 left as of July.

  • The Model S, which will sell at an almost-reasonable price of $49,000, is drawing strong reviews from the car and technology trade press.

  • Founder Elon Musk thinks he can be profitable next year and produce 60 of the new cars each day. Musk granted himself a number of out-of-the-money options that don't pay off until the company is worth $43 billion - 14 times its current market cap.

  • Electricity is getting cheaper next to gasoline thanks to the natural gas glut and pump prices near $4/gallon.

  • Solar energy is now expected to become as cheap as grid energy throughout most of the country by 2016.

While General Motors (NYSE:GM) seems unable to crack the problem of cheap, reliable, scaled electric battery power, Tesla's battery technology is looking interesting. Founder Elon Musk is publicly predicting he can deliver $200 per kwh batteries by 2015 - that's a little more than two years away.

Reliable rechargeable batteries are the key technology here. Currently the 1,000 pound charge packs are vulnerable to being "bricked" if they fully discharge. This may be one of the most important projects in technology right now, and if Tesla - if anyone - can get to anything like a reliable system they will produce value that goes beyond mere car production.

Personally I would like nothing more than to see Tesla succeed. I give it only a one in three chance of doing so, because even if the battery problems can be solved larger, more scaled producers may be able to take that prize away. But today's odds are much, much shorter than the odds were a year or two ago. Those considering an investment would be wise to focus on the batteries, however, not the cars.

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.