Writing about and/or commenting on Tesla (TSLA) is a lot like writing or commenting on Apple (AAPL ). Neither of these appears to be a stock; both instead appear to be religions. People have decided they love one (or maybe both) of the company’s products, and therefore the stock, and no one can talk them out of that position. Not surprisingly, then, my 5/23/13 post TESLA (TSLA): THE GREENIES ARE CHARGED UP, BUT… in which I questioned (Some who aren’t used to reading my material said “bashed,” but I thought I was quite balanced in my assessment.) the Tesla Model S and expressed my misgivings about the stock at a much lower price ($92.71) than that at which it closed today taught me that if you want to draw attention to your writing, write about TSLA.
The big announcement today from Tesla Chairman Elon Musk, the announcement on which people had been anticipating for weeks, was that Tesla will triple the number of supercharging stations by the end of next month. Within six months, Tesla will have covered most of the country’s major metro areas with superchargers and will enable people to cross the country diagonally from New York to LA without fear of losing power…and all, presumably, on Tesla. By a year from now, the whole country should be covered…no more range anxiety. Also, the charging network will have some kind of solar backup so Tesla owners will be able to charge their cars even if the electrical grid goes down.
A supercharger, by the way, enables drivers to, within twenty minutes, charge their cars to the point at which they can be driven three hours. Twenty minutes is longer than it takes to fill a conventional gasoline tank (about four times longer), and if I fill my tank in five minutes, I can drive five or six hours before having to stop to refill. But Tesla’s getting close to being practical with their supercharging systems…and that’s impressive. And, lest I draw even more brickbats than I anticipate, I will also add (again) that most of the buff books, especially Motor Trend and Automobile, and Consumer Reports LOVE the Tesla Model S. Yours truly has not driven it; despite my love of test driving (See my already seminal 5/20/13 post, I TEST DROVE A KIA TODAY…), I cannot in good conscience go into one of the few showrooms in the area and test drive a car I could not possibly afford.
The first reaction of the suitably skeptical and cynical investor (or car buyer) should be to question whether Tesla can pull off such a feat. A nationwide system of superchargers that can be conveniently accessed would be a titanic accomplishment. And even if it can be achieved, 20 minutes for three hours of driving, while impressive, still adds a lot of time to long trips and renders the Model S not the vehicle of choice for anything but driving around town. At $70,000 (Okay, $62,500 after tax credits.), one would like to not have to buy a second car for long trips.
A few more questions.
According to reports, the juice that Tesla owners get from the superchargers will be free, provided by Tesla. That can’t be right, can it? Why not charge the drivers for the relatively cheap electricity? It would seem that people who are rich, and/or silly, enough to shell out $70,000 for a car should have no problem paying for the electricity necessary to power their status symbols. But if Tesla is indeed picking up the charge for the charge, if you will, how much will that cost Tesla? A wise guy answer would be something like “at the volumes TSLA is looking to sell, not much,” but it is something to think about.
And, on a broader scale, if I am wrong and this electric car fad really catches on with the Tesla, the Nissan Leaf, and various other pure electrics capturing the American imagination, how will our electrical grid handle it? One could answer that if we reach that point, Tesla will have been a resounding success, but not only do stocks discount the future but also the country will have to do something about increasing electrical supply, in a relative hurry, in a nuclearphobic world. No mean task.
Even if we assume that TSLA can fulfill its promise of covering the country with superchargers by a year from now, which is quite a brave assumption even for someone as widely and justifiably admired as Elon Musk, questions remain. And it still looks like TSLA is a company selling cars that use a transitional technology, cars that only a few people want and even fewer can afford. And, yes, I realize that TSLA is a luxury car maker (Its lower priced models, which still won’t be cheap, aren’t supposed to come out until 2017 (See today’s announcement.) and, right now, at least, TSLA doesn’t have the money to develop and produce them (See my aforementioned 5/23/13 post.)) and not everyone can afford luxury cars. But TSLA is a luxury car producer, indeed, a boutique luxury car producer, aiming to sell 20,000 cars this year in a 15 million car market, with a market capitalization of $12 BILLION! By contrast, other car companies’ market caps are as follows:
Ford $61 billion
GM $48 billion
Daimler $67 billion
Honda $70 billion
Nissan $47 billion
Volkswagen $76 billion
The comparisons are not perfect, but they are a lot more apt than the comparison the bulls are throwing around to AAPL ’s $426 billion market capitalization. Does it make sense that a company that might sell 20,000 cars this year is trading at ¼ of the value of GM, which sells ten times as many cars, in the U.S.
Is this the time to sell TSLA? Though I’ve taken a small put position, just to focus my thinking, I don’t know. And to prove that I don’t know, I bought my July puts on May 21 when the stock was trading at $88.24; it’s now trading at $104.95 and I am down well over half on my position. The stock has doubled in the last month and has tripled in the last six months. Somethin’s gotta give. But, as I’ve said before, markets, and stocks, can stay rich a long, long time. See my 5/9/13 post, OF 10 YEAR TREASURIES AND STEAMROLLERS: RICH MARKETS CAN, AND DO, STAY RICH. And perhaps stepping in front of this freight train is not advisable; note how TSLA has defied, so far, the old “buy on rumor, sell on fact” adage in the wake of today’s supercharger announcement.
As for yours truly, I’m going to wait around a little while before I dump my puts. Even trading, like investing, should be done with patience, understanding the relative nature of that term. And, as a further warning, I am a far better investor than I am a trader; accordingly, I have so little in this trade it won’t make much difference one way or the other.
TSLA: $104.95
S&P 500: 1,654.41
Dow 15,324.53
GM: $34.64
F: $15.90
I'd like to say that it doesn't make sense to buy an electric car.
ReplyDeleteBut with technology changing so fast, the idea of owning a car may seem like an old one. I think younger people don't really find driving and owning a car that exciting. The car is becoming less about identity and more for getting from A to B in comfort. I hear about 18 and 19 year olds that are in no rush to get his/her license. There are companies such as Zipcar that provides convenient ways to rent a car.
I know this is a small percentage of people and it would be cheaper to own a car instead of renting if it was used everyday for commuting.
This may be a greater trend in the future and I think an electric car may work well in this situation. The cars are purchased by rental car companies that can afford the high capital costs. Electric cars may be better for rental car companies because of the presumably low maintenance costs (No oil changes, filter changes).
These advantages would only be possible in highly populated areas with charging stations throughout. I would say the big game changer would be self-driving cars. This seemed like science fiction a few years ago, but there are cars out there that can almost drive themselves on the highway and Google is already doing it.
We would pay a monthly fee just like a lot of services out there. Going to work? The car will arrive at 6 and will be waiting for you. Get in and read a book or text your friends on your way to work. No need to pay for parking because the car will be used by someone else while your working. Low on battery? It goes to the rental facility and drives onto a docking station.
This won't help Tesla in the short term, but how far off are we from this situation?
You're right, Mark; there are all kinds of demographic changes that are having, and will have, a profound impact on the way we look at and use cars. Most saliently, people of the (I think they call it.) Y generation have nothing like the fascination with cars that my generation had. People your age and younger who share your love of cars, as manifested in your driving the Mustang with the manual, are a rapidly dwindling group.
ReplyDeleteAs these changes in attitudes take hold, and a car is seen as more of a way to get around a city when biking or the bus is inconvenient or difficult, the electric car should have a big place. Its biggest problem, limited range, is nearly eliminated in this application. And its advantages, which you point out, come to the fore.
You are right that this will not help TSLA in the short term, but you are also right in asking, rhetorically, how soon we are to the point at which electric cars will have a prominent role in our transportation infrastructure.
Great points, as always, Mark; thanks for reading and commenting.