In the interests of full disclosure, I am effectively short Tesla (TSLA); I am long the July 85 puts, which I bought a few days ago when TSLA was trading more than $4.00 cheaper than it is trading today. So I am talking my position, and, so far, it is a losing position. Certainly, I don’t think it will ultimately prove to be a losing position or I would have dumped it. And I’m not writing this in order to provide a better opportunity to dump it. Further, as I have said ad nauseam on this blog and in other forums, markets and stocks are notoriously difficult to call, so I never put any kind of real money into trades such as this TSLA trade. I do it for the intellectual challenge, for fun, and to focus my thinking, largely so that I can write more effectively and entertainingly on such topics.
A lot of, but certainly not all, the “experts” love TSLA because, among other things…
· Motor Trend and Consumer Reports love the Model S, the company’s flagship electric powered sports sedan
· The company, using some of the proceeds of a $1 billion stock deal, paid back its $452 mm federal loan, making it the only U.S.
· In some people’s opinions, electric power is a promising, if not the promising, propulsion system for cars in the future.
Some analysts have come up with ratios, such as market capitalization per vehicle produced, that show that TSLA is wildly overvalued relative to any other car company on earth. But even these observers, who are usually, but not exclusively, bearish admit that these are irrelevant, perhaps even foolish metrics. Yours truly does not like TSLA for a variety of even simpler reasons.
The Tesla Model S combines the downside of all electric powered cars (range anxiety and the negation of the automobile’s perhaps most attractive attribute, freedom of mobility (See my 5/9/13 piece, NISSAN LEAF: WHY GASOLINE? I’LL TELL YOU WHY GASOLINE!) with a $70,000 base price tag. Thus, TSLA produces a car that few people want that even fewer can afford. This is a recipe for success?
A less expensive Tesla model is planned, but not for launch until three or four years from now. Further, after paying back the government, TSLA doesn’t have the cash to develop the more, but not quite, popularly priced car. Unless it sells a lot more cars, produces a lot more cash flow per car (which would perhaps involve increasing the already astronomical price), or can convince more investors of its vast potential, TSLA may be a one or two (if it comes through with its planned Model S based SUV, as seems likely) product, boutique car company. And even if it could do another big stock deal, or co-founder, Chairman, and CEO Elon Musk comes up with more equity, would such dilution be good news for existing holders?
Bullish analysts point out that Tesla is a supplier or potential supplier of electric car technology to other car companies. Great…TSLA can sell technology for a car that few want and/or can afford to companies who will find few customers to buy such cars. There is also the argument that someone could buy out TSLA, which is always a possibility. But one wonders about the business case for buying a company that produces a car few want and fewer can afford. Maybe a GM, Ford, Toyota
One can’t help but believe that much of the appeal of TSLA to Wall Street is that the Street is inhabited by people who can afford to spend $80,000 and up (Who wants a mere base model at $70,000?) to trumpet their green bona fides. The rest of us have better sense. And that sense tells us not only that even an “extended range” (200-265 miles at a steady 55, a concept with which not only yours truly is completely unfamiliar) car like the Model S makes no sense, but also that we couldn’t afford it even if it did.
The same common sense tells us that a stock that has more than doubled in just over a month’s time (On 4/17/13 , the stock closed at $45.45; it closed today (5/23/13 ) at $92.73. Exactly a month ago, 4/23/13 , it closed at $51.01.) is discounting a LOT of good news, probably a lot more real good news than TSLA is providing.
TSLA: $92.73
S&P 500: 1,650.51
Dow 15,924.50
cash will not be a problem...we live in the QE era of easy money. Executing the game plan is the only issue...and who better to carry it out than Elon Musk. While I understand your concerns about share dilution in the future, the recent offering with its dilution seemed to cause the shareholders no pain...I doubt that additional offerings will, as long as they propel the company forward. Lastly, I'll add 'range-anxiety' to the list of phobias that I could indulge in, but have decided to reject. Look for supercharger announcement next week to provide a palliative for your range-y fears.
ReplyDelete--best, W
5/23/13
DeleteYour comments on dilution are well taken; offerings so far have only helped the shareholders as the perception that the money will be invested at astronomical ROIs seems to have taken hold. Whether those perceptions will hold in the future is, of course, open to speculation. Can the bloom on this particular rose be as fragrant in the future as it is now? I have a hard time believing that, but I’ve been around long enough to never be surprised.
I look forward to next week’s supercharger announcement, but it looks like the market is anticipating it with a degree of enthusiasm that will be hard to meet; anything short of unmitigated great news may be met with grave disappointment in the market.
We are in nearly complete agreement on Elon Musk. The man is clearly a visionary, a genius, and a man of proven, even legendary, entrepreneurial abilities. And, despite my position in the stock, I’d love to see him succeed here.
Thanks for reading and commenting, Bill.
There will be superchargers along all major highways. Not only will you have the range to go wherever you want, it is free to charge where you would have to spend hundreds on gas. Remember: There werent so many gas stations when the Model T came out.
ReplyDeleteAlso, the range at 55mph is 300 miles, not 200 as you stated (lied). Its 265 under normal driving circumstances.
Also, in all 50 states there is at least a $7500 tax credit you get when purchasing the car. So the base model is 62k not 70k as you stated. You can get the base performance version for 87K. These numbers seem to be inflated in your head. Its not cheap, but facts are facts.
Your assertion that nobody wants the car is going to be obliterated in a matter of months. Everybody wants a quiet, super fast car that in daily use never needs to stop at a gas station.
5/23/13
DeleteThe 200-265 mile range I cited came right off Tesla’s website
“Travelling at a constant speed of 55 mph, these kWh figures translate to 206 and 265 miles of range per the EPA five-cycle test.”
SOME DAY there will be chargers along every highway, but that day apparently is a long way off. And even if the chargers were everywhere now, it takes far longer to charge a car than it does to fill a tank; “62 hours of range per hour of charge” under the fastest of charging methods…again, straight from the website. A stop for power will have to be more of an occasion than a stop.
Your point on the absence of gas stations in the days of the Model T is well taken. But back then we had risk taking entrepreneurs (Yes, like Elon Musk!) who were willing to take the chance on building gas stations when there weren’t many cars; they were willing to invest on the come, as we used to say. Now we will have to depend on a bunch of whiny corporate types who wait for a government subsidy before they take on the risk of installing chargers. The subsidies will come, one supposes, but, like all things involving the government, will take time.
So the base model is “only” $62,000 with the tax credit. As you point out, still not cheap. A long way from it. And the performance model is $80,000 after the credit…even further from cheap.
Everybody might want a quiet, super fast car that doesn’t need to stop at a gas station. But few people want a quiet, super fast car that can only go, even with your numbers, 300 miles and then has to be recharged, which takes lots of time. And most of those who WANT such a car can’t, and won’t be able to any time soon, afford it.
My assertions may be obliterated, but not in a “matter of months.” Years, maybe, but months, no. And even then we will have the problem of the strain on the electrical grid if enough people are charging their cars. It looks like what TSLA is peddling is strictly overpriced, transitional technology.
Thanks for reading and commenting.
I meant to say, quoting from the Tesla website, "62 MILES of range per hour of charge."
ReplyDeleteSorry for the oversight.
I'll just buy one with a 10 year car loan.
ReplyDeleteWhy not? It's the American way!
ReplyDeleteThanks, Mark, for reading and commenting.