Tesla Hits Some Serious Potholes

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Electric-car maker Tesla (Nasdaq: TSLA  ) is finally acknowledging the realities of the marketplace. According to news reports, the Tesla Roadster, which brought Tesla to the forefront of electric automotive technology and brought it much fanfare, is being discontinued in two months in the U.S. market and being replaced by the Model S.

Tesla probably sees the Model S as a way back into the market after several quarters of dismal performances. Allegedly, it's even looking into production of cheaper electric cars.

End of the Road
The Roadster was the first car to come out of the Tesla stables. It grabbed eyeballs because of its sleek design, its driving range, and the fact that it was an all-electric sports car. But the price tag of $109,000 was clearly a dampener even for a diehard sports-car fan. Tesla claimed that the Roadster was more than twice as efficient as Toyota's (NYSE: TM  ) Prius, but ultimately the company could sell only a handful -- about 1,650.

Nevertheless, the company garnered a lot of confidence from investors and the government. In fact, the Bank of Uncle Sam has doled out a $465 million loan from the U.S. Department of Energy for Tesla to set up a manufacturing facility for the new Model S. It's good to have friends in high places.

With the Roadster off production, Tesla is now looking at carving out some market space for the Model S to grow. As the Roadster fades out, it takes with it the idea that changed the way people looked at electric cars -- from boxy moving objects to sexy high-end sports cars.

Start your engines
Tesla has not changed its marketing strategy. It plans to focus on the high-end vehicle market and provide a sleek, attractive design coupled with features to die for. For the Model S, there will be three variants. Each will have different driving ranges, and each will be priced accordingly. The lowest price will be $57,400, and the highest is said to be $77,000. Deliveries will begin by the middle of 2012.

Tesla plans to produce 5,000 units in 2012 and take that number up to 20,000 in 2013. But this will be possible only if Tesla can crank up demand for its vehicles. Although rising oil prices could work in the company's favor, expensive batteries continue to be a problem. Battery costs can go as high as $25,000.

Even after Tesla's not-so-profitable run with the Roadster, companies such as Panasonic (NYSE: PC  ) are continuing to put money in the technology that runs it. Tesla uses Panasonic battery cells and plans to collaborate on the development of advanced battery technology.

Fool's take
Selling 20,000 cars by 2013 is going to be a tough job, and it has to be done in the presence of competition from the Nissan Leaf and several other plug-in hybrids such as GM's (NYSE: GM  ) Chevy Volt and the Ford (NYSE: F  ) C-Max, which is scheduled for launch in 2012.

It looks like Tesla has a long way to go before it finds the road to profitability. As long as electric cars remain costly, it will take a lot more than some killer features to sell them. The way I see it, Tesla is a stock that the Foolish investor should stay away from.

Fool contributor Arunava De owns no shares of the companies mentioned in this article. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 03, 2011, at 12:44 AM, dave6220 wrote:

    Way to go're setting new standards for uninformed and biased journalism.

  • Report this Comment On August 03, 2011, at 8:43 AM, sne0782 wrote:

    Agreed, this article is really badly written. I have read articles that spoke poorly of Tesla, but I didn't have a problem with them because there were valid points. This just seems like an aritcle that was written to meet a monthly quota.

  • Report this Comment On August 03, 2011, at 10:35 AM, grim22 wrote:

    not sure if you defined what the potholes were except for demand. if that is the "pothole" then you failed to delineate exactly where that demand is. Right now, the 2012 production of 5000 cars is already spoken for. Apparently there is enough demand a full year in advance, without any advertising whatsoever, and without a physical car to test drive to sell out the first year's allotment of cars. 20000 cars the next year doesn't sound like too much of a stretch considering those who: 1) wait for the 2nd year of a new car (after all, it is new tech), 2) couldn't get in on the first one, and 3) people who want one after seeing it in real life. Yes, the valuation is terrible, but so is your article.

  • Report this Comment On August 03, 2011, at 10:37 AM, grim22 wrote:

    Also, plans for the Roadster to be phased out were reported months ago. It is a not a fully "in-house" design (body by Lotus), and they acknowledged that the pricepoint was for enthusiasts but it was showcase for the technology. I test drove it and it went from 0-60 in 3.7 seconds. Faster than a 911 GT2 off the line.

    Please do some fact checking.

  • Report this Comment On August 03, 2011, at 1:24 PM, rosenauj wrote:

    Morgan Stanely has a $70 Price Target. Period.

  • Report this Comment On August 03, 2011, at 4:10 PM, ParkCityGuy wrote:

    I've got one (a Roadster) and ordered another (Model S). I own the stock (pre-IPO), and the gain has paid for both cars, and who knows, it may pay for third. Needless to say, I disagree 1000% with this article.

    TSLA is executing fantastically on its plan, which always included a limited run of the Roadster, which was designed to prove the concept, not to be a mass-market car. Not only was the phase out reported months ago, it was always in the plan (indeed, recently TSLA extended its contract with Lotus for a few hundred extra Roadsters).

    This article is completely one-sided, and is very biased in tone. It leaves out important information such as the fact that TSLA already has 5,000 orders for the Model S, that Toyota recently signed a $100MM deal for TSLA to build the power system for the e-RAV4, and that TSLA is on track to deliver the Model S in mid-2012 (and that they will be making it at their new factory, which they bought and equipped for a relative song).

    It's a shame that the Fool would publish such a "foolish" (not in the Motley Fool sense) article.

  • Report this Comment On August 03, 2011, at 6:40 PM, ParkCityGuy wrote:

    I just listened to TSLA management (and REAL industry analysts) on the Q2 2011 earnings conference call (replay here: Absolutely everything I heard, from questions to answers, indicates TSLA is increasingly successful, and has a very bright future.

    Get a clue, Arunava.

  • Report this Comment On August 04, 2011, at 6:59 AM, AdvanderMeer wrote:

    This author has written quite a few articles here and hasn't shown much depth in his research as can be seen in the comments to his other articles too.

    Now this means the Fool doesn't proof read articles, they accept this as the level of journalism on this website or have a dislike for EV's and Tesla in particular.

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