Wait on Tesla Motors

The following video is part of our "Motley Fool Conversations" series, in which analyst Lyons George and editor and analyst Isaac Pino discuss topics across the investing world.

In the wake of a recent management shake-up, Lyons and Isaac discuss what's really going on -- and what the future might look like -- for Elon Musk and Tesla Motors. With everything riding on their move into manufacturing, Musk and company need to get a lot of mileage out of the forthcoming Model S if they ever want to compete with the big boys in Detroit.

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Isaac Pino has no positions in the stocks mentioned above. Lyons George has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple, General Motors Company, and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not 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 (19) | Recommend This Article (8)

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  • Report this Comment On February 06, 2012, at 3:04 PM, DanFrederiksen wrote:

    your analysis is quite wrong. and if you want to be able to say something intelligent about tsla in the future you can hire me.

    tsla future depends on 2 key things, the margin they are able to have on the model S and just how big a latent demand is outthere among the silent masses.

    those two are massive unknowns and going by tsla's record to date they are really poor at managing cost (they spent something like 250k on every 110-150k$ roadster they sold), huge loss on the roadster program and they would have been bankrupt several times if the green bubble didn't keep inflating them and musk didn't put in his very last dime just to keep it afloat leading up to the IPO. (see 'revenge of the electric car' for a bit of insight on that). and also judging by prior preorders, the roadster had around 2000 preorders but only 600 or so became sales. in fairness a big recession happened but still. today they are talking about 8000 or so preorders but to stay alive and be able to pay back the 450M loan they need consistent sales of minimum 10000 per year with a gross margin of maybe 15000$ per car just to stay alive and that's a pretty big if.

    and they didn't advertise in the super bowl which I think they should have. sure it's 3.5 million for 30 seconds but once you are in for a billion dollars it doesn't pay to remain unknown.

    so to sum up, if tesla doesn't get very strong profitable sales and consistently they wont be able to pay back the DOE loan. if the model S isn't a substantial success they wont be limited to making drivetrains for others, they will be dead. their 50-100million dollar salary drain will kill anything but big success.

    so you have a quantum mechanics situation, they are either worth less than nothing or a lot of money. there really isn't anything in between those two outcomes. I expect them to fail but the margin and latent market are still critical unknowns.

    you should not expect anything wrong with the structure of the car. expect the engineering to be solid in a conventional sense. that's not where they will fail.

  • Report this Comment On February 06, 2012, at 3:06 PM, DanFrederiksen wrote:

    btw, fisker karma sales may be ridiculously low, maybe less than 100 sold in 2011 and they were talking several thousand. if karma sales are really poor that might bode very poorly for tsla

  • Report this Comment On February 06, 2012, at 3:57 PM, soflainvestor wrote:

    My goodness. If this is the best "analysis" that the Fool can produce for TSLA, I've got to rethink my subscription.

    Both analysts appear to be ill-informed, misstate or misinterpret key facts, leave out important details, and use the firing of one manager to cast aspersions on a automotive design that virtually every reviewer has lauded as brilliant.

    For example, your "analysts" don't mention that TSLA has over 8,000 reservations @ $5,000 or more a pop. That means that their entire 2012 production run is pre-sold without any advertising.

    Your "analysts" don't mention that the last investor's call reinforced Tesla's claim that their gross-margins are in the 25 percent range, considerably above automotive standards and in large part due to the simplicity of the EV drive train.

    Your "analysts" fail to mention that both Toyota and Diamler were so impressed with Tesla's drive train technology they licensed it for future EVs.

    Your "analysts" claim that because they are selling high priced automobiles, their future is uncertain. Tell that to BMW or Audi, to name just a few.

    If I didn't know better, I'd think that your "analysts" shorted the stock and were trying to purposely spin negative on one of the most innovative companies in the automotive business.

    Disappointing.

  • Report this Comment On February 06, 2012, at 5:08 PM, F2JP wrote:

    After reading your headline, I couldn't believe my ears when I heard Lyons George say that. Elon Musk "vaguely eluted" that Nick Sampson was fired from the company. You stated that you looked "a little deeper" into Tesla.

    Apparently that was very little.

    I have to wonder how much attention you were paying during the conference call. Apparently, very, very little.

    I listened personally to everything Elon Musk said. I heard him detail that Nick Sampson was indeed a supervisor of the chassis line and that his expertise was in the development of the line. I also heard him detail that his replacement's experience was more weighted to the full-scale production of the line.

    My understanding of Elon Musk's statements is that the company was transitioning from the building stage, to the production stage of Model S development. He indicated that he felt that the change was necessary at that point in the development cycle.

    Nick Sampson was a supervisor, not a Manager, Engineer, Designer, Director. In the scheme of an auto manufacturing company's structure, how heavily should we weigh the contribution of a supervisor as being determinant of the entire company's manufacturing capabilities or stock performance?

    You go on to comment that you are unsure as to whether the model S chassis would prove to be a sturdy vehicle.

    Again, very, little research. Listen to Elon Musk's comments on Model S crash safety ratings (freely available on their website) in the testing being done by the NHTSB to achieve the stated goal of achieving highest crash test ratings of any vehicle on the road.

    These crash tests are mandatory for any vehicle to be certified for production and sale to the public.

    He clearly states that testing has achieved the five-star crash testing level, and has only one category left to achieve being the safest vehicle on the road.

    Have you seen the model S chassis? I have. I have touched it. In my mind it is truly an amazing example of the future automobile, technology.

    The model S chassis, and drive train design and construction will set a new standard for excellence in quality, safety and design.

    You then speculate, that Elon Musk may not be interested in seeing his technology stolen ongoing.

    He has stated very clearly on more than one occasion that sharing Tesla's technology is part of their business model. He is also stated that the company's success is partially dependent on the ability to supply their technology to other manufacturers.

    Tesla motors is selling their technology for a profit, it is not being stolen.

    Elon Musk has openly stated that his motivation is to expedite the adaptation of alternative energy powered vehicles, namely EVs, throughout the entire automotive industry. So far I haven't seen anything that would lead me to believe he isn't dead serious, or well on his way to achieving that goal.

    I believe that one of the things that sets Tesla Motors apart from other auto manufacturers is that Elon Musk is from a technology background. He embraces partnerships and is comfortable thinking outside of the box.

    Conversely, the heads of other automobile manufacturers are from the auto industry, which is historically resistant to change, not inclined toward partnerships, and of the mindset that if we build it they'll buy it. We will tell them ours is the best and they will believe it. (IE Leaf, Volt, Etc)

    Isaac Pino goes on to compare Elon Musk to Steve Jobs. I think that, while, there is basis for comparison, there are also some differences between the two men's approach.

    I believe Steve Jobs felt he had to control every aspect of Apple and their products. It Seems That Elon Musk feels that certain aspects of the end product can be left to others for their contributions.

    By building, and sharing the chassis and drive train components Tesla motors is able to control everything related to Tesla motors interests. By letting other manufacturers design their own body styles and other, non-chassis or power train related features, Elon Musk is better able to achieve his goal of expediting EV adaptation.

    The more models and form factors people have to choose from, the quicker the market, and the infrastructure needed to support it, will grow.

    Elon Musk is indeed a fierce individual. He has proven himself very capable of understanding a market's potential, and successfully supplying products that meet the demands of that market. I honestly believe that he understands that given Tesla motors resources, it would be impossible to grow quickly enough to meet his goals.

    By selling Tesla Motors' technologies to other manufacturers he can enhance the company's profit making capabilities, and achieve his goals at the same time.

    To me that seems like a smart move.

    I once saw an interview with a former CEO of GM (while Tesla was still developing the roadster) commenting on how he expected that Elon Musk, and Tesla Motors would learn a lesson or two about how difficult it is to actually manufacture, bring an automobile to market.

    No doubt there were many lessons to be learned, and so far it seems that Elon Musk, and Tesla Motors are particularly adept at learning those lessons well.

    I think we're going to see. Elon Musk, and Tesla Motors show the big, stodgy auto manufacturers that a young, smart upstart can beat them at their own game.

    You guys seem well-intentioned, but from where I sit you really need to do a better job at researching your subject matter before making comments that others might rely on in making their investment decisions.

    This article really doesn't speak well to your credibility.

    Don't take the "Fool" part of your moniker so seriously.

    Here's a suggestion, why don't you carefully research Tesla's Website, Elon Musk's Tweets NHTSB test results, and other credible sources in depth. Go and see a model S.

    Then you could publish a follow-up article.

    Frank J Perruccio

    Disclosure: I am long on Tesla

  • Report this Comment On February 06, 2012, at 9:10 PM, stra6128 wrote:

    Very well stated - factual and non-biased. Tesla has met every deadline and goal they have publicly pronounced regarding the Model S. The launch of the crossover Model X is another potential gamechanger re : electric vehicles. I gave up on MF Analysts a long time ago - mostly windbagged opinion with poor track records.

  • Report this Comment On February 06, 2012, at 9:45 PM, Summerof54 wrote:

    It is disingenuous to describe Nick Sampson as merely a supervisor.. I have his business card before me and it entitles him "Director: Vehicle Integration & Chassis Engineering" .

    Mr Sampson is an engineer of considerable experience with Jaguar and Lotus. The move to fire him was strange but of one thing I am sure: if Nick supervised the chassis, the engineering will be strong and give Tesla no problems.

  • Report this Comment On February 06, 2012, at 10:39 PM, lawrence123 wrote:

    why do these two no close to nothing about tesla motors? please do some research/ work before...

  • Report this Comment On February 06, 2012, at 10:39 PM, lawrence123 wrote:

    know

  • Report this Comment On February 07, 2012, at 12:43 AM, Bugeater327 wrote:

    If you don't even know how to pronounce "chassis"

    how should anyone believe you know ANYTHING

    about automobiles, let alone a game changing

    technology like the Tesla!

    chassis [chas-ee] (Excerpt from http://dictionary.reference.com)

    Like other folks said, do your homework first kids.

    Disclosure:

    Long on TSLA.

    Tesla Model S reservation holder. Just can't wait!

  • Report this Comment On February 07, 2012, at 4:33 AM, F2JP wrote:

    I have realized that I inadvertently mixed up Nick Sampson's role at Tesla, and misstated his role in the company.

    As Director of Vehicle Engineering at Tesla he played a pivotal role in the creation and development of the Model S.

    My sincere apologies to Nick, and I have every confidence he'll have a bright future, based on his excellent work at Tesla, Jaguar, and lotus.

    Frank J Perruccio

  • Report this Comment On February 07, 2012, at 9:00 AM, rosenauj wrote:

    The fact that the stock is higher now then it was when this news broke clearly shows you didn't take in to account that the rate of reservations went up, maybe you didn't listen the hour long conference call... Based of Elon's wording they are still falling short of their goal of 5 star crash ratings on all crash tests (might be why Nick was fired).

    Fisker is having major demand issues and is already having to lay off workers based on a CMBC report this morning. These new Techs are going to have growing pains no doubt. I am long Tesla but this is my risk play. Elon has been successful with every business he has been involved with (PayPal, SpaceX, SolarCity) and that is why I picked Tesla in this space above others.

  • Report this Comment On February 07, 2012, at 1:01 PM, oakhill239 wrote:

    what is the one analyst talking about Apple being vertically integrated ??? ever hear of Foxconn, China Inc., etc??? - Apple doesn't make anything...

    Tesla is trying to become as vertically integrated as they can - this is opposite of Apple.

  • Report this Comment On February 07, 2012, at 1:31 PM, okashira wrote:

    Apple is definetly not vertically integrated, lol. They extert alot of control over their suppliers and sales, but they don't own any of it.

  • Report this Comment On February 08, 2012, at 10:18 AM, KingEdwardVIII wrote:

    Guys,

    sorry to say that, but this is not the analysis I expect from TMF.

    I love Elon and he's one of the entrepreneurs I admire most. But you, folks, should do a better job and some homeworks.

    It was already mentioned that Nick Sampson was not a supervisor but a director there: first example of taking information from the company at face value without double checking. What about Peter Rawlinson? Are you really buying that he wanted to do some gardening with his family?

    What are we doing here, are we "believers" or are we doing our best to read through the spin the company give to the news? Seems to me there's no critical analysis with TSLA.

    Any other company would be killed for saying "Sorry folks for not telling you before, but it was all part of a plan, since now we move to high volume production...": that is a big load of B.S.

    First of all, 20k units per year is really low volume production in automobile industry. Furthermore, if high volume was a critical issue in engineering, why did Elon hired Peter long time ago and, as far as I know, loved Peter's job? That's because because he wanted exactly his type of ability to engineer a car, the one you learn in a small superlean car manufacturer that forces you to find creative and genial solutions with limited resources.

    By the way, you can be sure that Model S chassis is a remarkable piece of engineering, it's truly amazing, believe me! Hats off to Elon, Peter and whoever worked on it.

    But then, where's the analysis of the impact of two high profile people like that on the development of Model X? Are we expecting that there will be no delay in the launch?TSLA will present the car on the 9th and will say that everything is under control: I hope that among the army of believers out there, I will find someone who can stand up and ask for a more detailed explanation.

    About TSLA providing the technology to other OEM (with the risk of sharing the main asset of the company): is that because they have this noble objective to make the electric mobility more popular or because they need the cash? Frank Perruccio has stated already that the key factor was money and I agree with him on that.

    Where are some comments on the gross margin? Dan Frederiksen is right: what matters if profit, which will be mostly influenced by two factors, volume and gross profit per car. TSLA says they will have 25% GP, which seems amazing. Fair enough, but I hope that nobody compares that with BMW or Daimler though, as that would mean comparing apple with pears, given the different business model/distribution organization.

    And what's this comparison with AAPL? AAPL doesn't manufacture a single pin, while TSLA wants to control all steps in manufacturing in the most complex manufacturing industry of all. Again, the company like to play with the idea that they are the Apple of car industry and they keep mentioning that they want to be vertically integrated like AAPL, but there's nothing further away from truth, neither in manufacturing nor in distribution: you can buy Apple products also outside Apple stores, don't you? Try to do the same with a Tesla car...

    I would expect some critical analysis of these elements, not comments from people who drank at the source of the company and are now nodding in approval without independent thinking.

    Bottom line: I love Elon and I am not a Tesla hater at all. But I am not a "believer" either and I am looking for some sound analysis and independent thinking.

    Com'on folks, you can do better than that...

    On a different level, I'd rather pay a 13x multiple with AAPL which has proved consistently that can manage innovation and supply chain, rather than paying 30+x multiple for a company that has still to prove they can do it, around which there's very little sound analysis and which has a manufacturing plant they have never managed, but that's my personal investment philosophy.

  • Report this Comment On February 09, 2012, at 1:07 AM, spectechinvest wrote:

    There is MORE accurate analysis in most of these comments then there is factual analysis in this video by the Motley Fool.

    I too am disappointed in the inaccurate and inadequate reporting by these two reporters on the Motley Fool.

    Maybe think of consulting Frank J Perruccio before you write your next "hold on tsla" post. Frank pointed out some very good points about Tesla.

  • Report this Comment On February 21, 2012, at 11:27 PM, TMFBoomer wrote:

    To the insightful commenters, I wanted to say thanks for enhancing the conversation - ultimately making Fools better investors.

    While I have not had a chance to touch or see the Model S (as it seems a couple of folks here have - I'm jealous), I have been to their store and seen the Roadster. A visit to the Tesla store brings to mind Apple's retail layout immediately. However, my comparison of Apple and Tesla was intended to focus on the two companies as disruptive innovators. The term vertically integrated does not in fact adequately describe Apple's 'manufacturing' supply chain (although they did integrate software and hardware much more than Microsoft), but my point was to highlight the fact that Tesla is rethinking everything from the ground up (they aren't just adding batteries to an existing framework). This reminds me of Apple in many ways. I do believe that Elon Musk has a knack for innovating much like Steve Jobs and I will continue to follow this story.

    I think we can all agree Tesla is building a niche market and adding devoted followers much like Apple has done along the way. While this can be a difficult company to analyze because it varies so much from the larger automakers, look forward to more concise analysis in the future. Thanks for the feedback.

    - Isaac

  • Report this Comment On February 22, 2012, at 12:59 PM, TMFNoCeilings wrote:

    Hey All,

    First things first: woa…that is a lot of comments! It’s great to see that Tesla inspires such spirited discussion within our Foolish community. It’s also great to see that our community still has room for differing and evolving opinions.

    The way I see it, Tesla is an extraordinary company, with extraordinary talent, extraordinary ambition, and, unfortunately, extraordinary obstacles in its path. Chief among those obstacles is a successful transition to full-scale auto manufacturing, including the in-house design and production of chassis [chas-eez…I stand corrected!) for the Model S. Because the future of Tesla is staked almost entirely on how the Model S fares, and because the success of the Model S is staked at least in part on having a high-caliber—or at least Lotus-caliber—chassis, I thought that the forced departure of the “Director of Vehicle and Chassis Engineering” might be something interested Fools would like to hear a little more about

    .

    I have visited a Tesla showroom, sat in a super-sleek Roadster, and signed up to wait my turn for a Model S test-drive. I have not been fortunate enough to take a look at a bonafide Model S, or a Model S chassis, or to meet with any of the key personnel over at Tesla. To that end, my working knowledge going into this was (and continues to be) that chassis production is an entirely new undertaking for Tesla, that a key person involved in that undertaking had been fired, and that Elon Musk responded to a leak of that news with a conference call that sounded, to my ears, a tad too optimistic. When a CEO responds to negative-seeming news with unbelievably positive news*, I don’t see anything wrong with bringing a healthy dose of skepticism to the table.

    Then again, and as I’ve already said, I don’t see anything wrong with healthy disagreement either!

    Fool On & Up,

    TMFNoCeilings

    *A category into which a prediction of 25% gross margins, in an industry that traditionally falls in the low-to-mid teens, almost certainly falls.

  • Report this Comment On February 22, 2012, at 1:44 PM, TMFNoCeilings wrote:

    Also, as an addendum: neither Isaac nor myself holds any position in any of the above-mentioned companies. I encourage you to disagree with, critique, and engage any and all Foolish analysis, but please do so knowing that we deliver that analysis with one goal in mind: to help the world invest better. We are 100% percent transparent with the everyday investor because our interests are 100% aligned with theirs, any we will NEVER offer investment insight that reflects otherwise.

    Again, thanks for all the feedback.

    -TMFNoCeilings

  • Report this Comment On March 21, 2012, at 1:01 PM, abell2g wrote:

    My comment is directed at the whole EV concept. As an engineer with many years of experience, IMHO EVs are very well suited for golf courses and retirement communities. Absent of all of the "green" hype they can not compete with a modern low emission gas or gas/hybrid car. Remove government intervention and all of these car companies will vanish.

    Yes I am short on Tesla.

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