What Tesla Motors Needs in 2012

Shares of Tesla Motors (Nasdaq: TSLA  ) didn't do too badly in 2011. The upstart electric-automaker's stock was up about 5.3% for the year through Tuesday. That's a solid result in a year when giant rivals from Ford (NYSE: F  ) to Toyota (NYSE: TM  ) were down sharply, though it trails the Dow Jones Industrial Average's 6.2% gain over the period.

Still, for a company that has yet to show a profit and is months away from bringing its bread-and-butter product to market, that's a fine result, a testament to rising revenues as the company continues to execute well on its plan.

But if 2011 was Tesla's year of anticipation, 2012 is shaping up to be the company's make-or-break moment. How will it go?

Coming soon: the moment of truth
Early signs suggest that it could go quite well indeed, though some potential wrinkles have recently appeared. Tesla confirmed last week that it is on track to deliver the first of its Model S sedans on schedule in "mid-2012" (a phrase that allows for a bit of fudging, but at least Tesla has been using it consistently all along), another sign that the company is on plan. The widely anticipated Model S has long been seen as Tesla's first mass-market car, though the first units will be anything but: Although a $49,900 price tag ($57,400 minus a $7,500 federal tax credit) has long been promoted for the Model S, that price applies to a base-level model that won't be built in the initial production run.

Instead, the first 1,000 cars produced will all be "Signature" models, with prices ranging from $87,900-$97,900 after that tax credit, a good bit higher than many (including many potential customers, I suspect) had anticipated. Tesla now says that the lower-priced models will arrive in "Fall 2012," when that $49,900 will buy you a Model S with a 40 kWh battery pack, giving an estimated range of 160 miles at 55 mph.

That's more range than the 100 miles or so that you'll get from a Ford Focus Electric or a Nissan Leaf, though those cars are priced considerably lower -- as many observers have noted, range costs money, plain and simple. And along those lines, if you're willing to spend more (think $70,000-plus, even after that tax credit), you can option your Model S up to an 85 kWh battery pack that will give you a full 300 miles – which should be the best in the business for a pure electric car.

For the well-heeled gadget geeks and early adopter types -- over 7,000 and counting, enough to sell out 2012's entire expected production -- who have already plunked down $5,000 deposits to order a Model S, all of that adds up to a compelling story.

The big question for Tesla: What happens next?

What Tesla needs in 2012
What Tesla needs in 2012, plain and simple, is a successful launch of the Model S. It needs to deliver the cars on time and as promised, it needs its initial buyers to be very happy, and it needs the production version of the Model S to get great reviews and stir up interest among potential buyers outside of the Tesla-fan clique -- the buyers the company will need if it is to get to the next level.

All of these things are more or less within Tesla's control, all of them appear -- at least as far as outsiders can know at this point -- to be on track, and the company's chances of success on those fronts now look pretty good.

But that's not the whole list.

Tesla also needs to avoid the kinds of teething troubles that are common with new technology and all-new cars, the kind General Motors (NYSE: GM  ) has encountered with its Chevy Volt. A safety flaw or other quality issue that might be an expensive nuisance for a global automaker with 50 different products could be a crippling blow for Tesla, where the company's future is largely dependent on this one new model's success. Tesla's engineers will surely do the best they can, but this is an untested company in uncharted waters: Building cars is hard, and the possibility of a problem is not remote.

Tesla also needs to avoid, at least until its products are well-established, exactly the kind of competitive disruption it has long hoped to inflict on the global auto giants. Most automakers do not announce groundbreaking products years in advance, as Tesla has done (for good reasons) with the Model S. It's possible that one or more of the global giants (keep your eye on Nissan (OTC: NSANY) and Honda (NYSE: HMC  ) ) is hard at work -- in deep secret -- on a new car that will take the wind right out of Tesla's sails. Tesla enthusiasts tend to discount this possibility, but the truth is that the Silicon Valley upstart's technology is not that far ahead of everyone else's, and huge sums are being spent to close the gap swiftly. If Tesla finds success, strong competition will appear.

There's only so much Tesla can do to head off those last two possibilities. As with most startups, Tesla's excellent execution so far will need to be accompanied by some good luck if the company is to get to sustainable profitability. Will that luck be forthcoming? We'll find out.

Tesla is an intriguing story, but the Fool's analysts have selected a different company that they believe is poised for tremendous growth in the coming year. You can learn more about this great stock in their new special report: "The Motley Fool's Top Stock for 2012." It's completely free for Fool readers –just click here to get your copy.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors, Ford, and Tesla 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 (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 December 29, 2011, at 8:59 PM, FuriousGreen wrote:

    Fantastic article. TSLA is looking very interesting at this point. Just how interesting? We'll see.

  • Report this Comment On December 30, 2011, at 12:43 AM, F2JP wrote:

    No doubt there are going to be other auto manufacturers trying to catch up to Tesla.

    Tesla has even made it easy for them by offering to provide them with the best EV drive component technology available.

    Let's face it, the large auto manufacturers have had decades to come up with new technology, and haven't been able, or have chosen not to.

    What are the odds they can do it now?

    Could it be that the big auto manufacturers are simply too old and bloated to catch the young, nimble Tesla?

    Tesla has to be well aware of others trying to one-up them, want to bet that they have a plan of their own?

    Then there is Quality.

    Tesla openly stated that Quality is a cornerstone of their business plan. Granted Tesla's history is short, but so far, I haven't seen any complaints.

    The Big3? Yeah Right. LOL

  • Report this Comment On December 30, 2011, at 9:34 AM, TMFMarlowe wrote:

    @F2JP: Tesla hasn't actually built any production cars from scratch all by themselves yet. The Roadster was mostly built (and designed) by Lotus. The quality and durability of the Model S is very much an open question right now, and there are good reasons for caution.

    And quality is a "cornerstone" of everybody's plan nowadays. Don't underestimate the competition; they've been doing this for a long time, in the face of cutthroat competition all over the world.

    Thanks for reading.

    John Rosevear

  • Report this Comment On January 08, 2012, at 4:09 PM, spectechinvest wrote:

    Tesla just announced that it will unveil its NEXT vehicle the Model X slated for a 2013 release on FEB 9th 2012. I have gathered a bunch of stats from different articles about the model x here:

    http://thespeculativetechinvestor.blogspot.com/2012/01/model...

  • Report this Comment On January 11, 2012, at 3:25 AM, maxEV wrote:

    If you're tired of paying for gasoline, and excited about EVs (electric vehicles), and in particular what Tesla is doing, you should go to Tesla Rumors

    for articles and economic comparisons of the Tesla Model S to other vehicles.

    http://teslarumors.com

    You can also get there directly by going to

    http://teslanomics.com

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