Is Tesla Motors a Buy?

A year after going public, Tesla Motors (Nasdaq: TSLA  ) has seen some ups and downs as a public company. The company had a wildly successful IPO that quickly zipped to nearly $36 per share and had the electric-vehicle industry buzzing.

But for most of 2011, shares have bounced around between $24 and $30, not really making a solid move one way or the other. With the Tesla IPO fever having passed, is it finally time for long-term investors to jump in?

Where Tesla stands now
Tesla Motors has always been about technology. The company's vehicles have a longer range than competitors and charge (relatively) quickly. That's why Toyota (NYSE: TM  ) has contracted with Tesla to build an all-electric Rav4. And it's the development service business that is helping growing Tesla's revenue.

Financially, Tesla is on shaky but improving ground. Second-quarter revenue more than doubled to $58 million, gross margins exceeded 30%, and deposits are strong for the Roadster and Model S. But the company still had a $0.60-per-share loss, losses are expected to mount through 2012, and no one knows whether the current stockpile of $319 million in cash will hold the company over.

Not giving up without a fight
Then there are those pesky competitors who don't appear to be rolling over. They may have even figured out how to make cars people want to buy! Who would have thought?

General Motors (NYSE: GM  ) is a fringe competitor to Tesla but if you believe fellow Fool John Rosevear, GM may have its act together now, and that's trouble. The company just signed a deal with A123 Systems (Nasdaq: AONE  ) for future electric vehicles. That implies that GM will make some sort of continued move into the space.

The 2012 Ford (NYSE: F  ) Focus Electric will also be a reasonably strong competitor to the Model S when it's released along with Nissan and Fisker, which may be Tesla's biggest competitor when it releases the Karma.

Tesla is betting the farm
One of my biggest hesitations is the risk in Tesla's business plan. Elan Musk is basically betting the company's future on the Model S by phasing out the Roadster. Any slip-up in production, design, or marketing, and it could blow up in investors' faces.

I like where Tesla is positioned in the industry, growing sales and building a development business, but I wouldn't bet the farm on Tesla the way Musk is. A small step into the water is all I could make until we see whether Tesla can become a world-class manufacturer. If it can't, it will get run over by the competition.

Interested in reading more about Tesla Motors? Add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not own an electric car or any of the stocks mentioned here. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

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 (5) | Recommend This Article (4)

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  • Report this Comment On August 17, 2011, at 1:21 AM, spectechinvest wrote:

    This is a good speculative analysis of TSLA, however I don't believe they are betting the whole "farm" on the model s. The toyota Rav4 deal is rumored to be up to 1billion dollars if their relationship continues with the Rav4, and Tesla also has a deal with the Smart4two electric vehicle. Aside from these Tesla is supposedly going to come out with the next generation Roadster after the model s. Then has plans for a crossover SUV whose design is due this fall and planned on the same platform as the model s so production costs will be dramatically less.

    Please feel free to read my blog about investing in EV's: http://thespeculativetechinvestor.blogspot.com/

  • Report this Comment On August 17, 2011, at 3:29 PM, Alfaduetto wrote:

    Tesla really has no volume potential. A123 has finally decided to move on.

  • Report this Comment On August 17, 2011, at 8:20 PM, baldheadeddork wrote:

    @ spectechinvest - The RAV4 deal is only worth a billion dollars in Musk's imagination. Toyota came out the day after Musk said that and made clear the RAV4 EV would not be built by Tesla and the only deal they had was the announced supplier contract for $100m.

  • Report this Comment On August 20, 2011, at 2:49 AM, spectechinvest wrote:

    @baldheadeddork. thanks for the clarification. Although leave it up to the big auto companies to build the drive train in california and assemble the car in canada.

    I find them contracting this technology out as just a kicker what they have to offer with future vehicles in the model x, future roadster revamp, and of course the model S.

    Anyone excited for the winter to watch his stock as the beta's come out and the model X is unveiled?

  • Report this Comment On August 20, 2011, at 5:00 PM, baldheadeddork wrote:

    "...leave it up to the big auto companies to build the drive train in california and assemble the car in canada."

    This is what annoys the hell out of me about Tesla fanbois. They don't know anything about the car business, then along comes Elon Musk to tell them all of their uninformed prejudices are true, and finally Musk closes the scam, err, sale with a fairy tale that his car company is going to be like Apple.

    Instead of jumping to the conclusion that the big car maker must be dumb, why not ask why Toyota would choose to assemble the RAV4EV in Ontario instead of closer to the Tesla facilities in California?

    I can think of a few reasons off the top of my head. Number one is, building a final assembly line is hella expensive. Just retooling a line from one car to another is easily a couple hundred million dollars just for the line. A new paint shop can cost upwards of a billion, no kidding. Toyota has already made this investment for the RAV4 at its Ontario plant, so why the hell would they drop that kind of coin to build a very low volume variant of the same car in California?

    That's why I knew from Day One that Toyota was never going to build the RAV4 at the old NUMMI plant. They already spent five billion dollars on one plant to build the RAV4 and it would be phenomenally stupid to duplicate it for an EV variant that might sell 10,000 units a year - if they're lucky.

    But wait, there's more. You seem to be under the impression that shipping the powertrain great distances is some kind of impediment to efficient manufacturing. You're wrong. Because of the efficiency of rail freight, it actually costs less to ship major components a thousand miles by rail than it would be to send the same volume of products a hundred miles by truck.

    That's why the gasoline engines for the RAV4 aren't built in Canada, either. They come from a Toyota factory in West Virginia, which also supplies engines to Toyota plants in Kentucky and Indiana. Another engine plant in Alabama supplies final assembly plants in Texas and Indiana.

    I know this probably sounds like something Steve Jobs would never do, but try to remember Toyota has been making money at this for a long time. The next dime in profit from Tesla will be their first.

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