This article is part of our Rising Stars Portfolios series.
At first glance, Tesla Motors (Nasdaq: TSLA ) could be a shoo-in dream stock for my socially responsible Rising Stars portfolio. Its blood runs green with environmentally responsible ethos, and it boasts a beautifully designed automobile and a mindset that it calls "more Silicon Valley than Detroit." However, lovely dreams don't always translate well into investment reality.
The company's eco-friendly ethos certainly leaves it well-positioned to ride the growing trend of green transportation. Today's consumers are transitioning from "easy rider" to "easing off the wasteful use of fossil fuels." Baby boomers' obsession with Harley-Davidson hogs and other high-octane vehicles likely won't translate well for younger generations (nor will gigantic gas guzzlers of all makes and models).
Tesla and its high-end, all-electric Roadster aren't alone in the zero-emission automobile market. Buyers have begun to clamor for the next logical step beyond hybrid vehicles like Toyota's (NYSE: TM ) popular, first-mover Prius. GM's (NYSE: GM ) Chevy Volt and Nissan's Leaf are the best known (and most readily available) electric vehicles on the market.
Alas for Tesla, while its only current model is a gorgeous piece of automotive machinery, it's also staggeringly expensive. The Roadster 2.5 costs more than $100,000 a pop, including an EV tax credit. Given the current economic environment, it sounds destined for a very niche market for the foreseeable future.
Nissan's Leaf, on the opposite end of the spectrum, is a mere $25,280 after the tax credit; that price point is hardly a daunting hardship or paradigm shift for most Americans shopping for a car.
Last but certainly not least, Tesla has yet to turn a profit. According to its final prospectus for its IPO, since inception, Tesla has generated just $147.6 million in revenue. As of March 2010, it had accumulated a deficit of $290.2 million, plus annual net losses year after year since December 2007. Although investing in young, unprofitable companies is very "Silicon Valley," entering into a nascent market with many well-known rivals could be a huge hurdle to achieving profitability in the near term.
Although the coming Tesla Model S is intended to bring in a larger customer base (and potentially greater profits), it won't be available until 2012.
My bottom line is that Tesla's a great stock for an SRI watch list, but it won't be purchased for my SRI portfolio anytime soon. (My Foolish colleague John Rosevear recently took an in-depth look at Tesla, too, and also came to the conclusion that the idea of this investment is more appealing than the probable reality.) At the moment, there are just too many risks for Tesla shares to be ready for prime-time buying.