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Should You Buy Tesla Before the Launch?

The following video is part of our "Motley Fool Conversations" series, in which industrials editor/analyst Isaac Pino discusses topics from across the investing world.

In today's edition, Isaac talks Tesla before the launch of the much-hyped Model S sedan. With a price tag of over $50,000, the Model S is often recognized as an upscale, niche vehicle in an industry that lacks the necessary electrical infrastructure. However, look for Tesla to use the introduction of the Model S, which is still half the price of the Roadster, as a launch pad into the mass market. Investors and consumers alike might be skeptical, but is it all-too-difficult to remember the sticker shock we were confronted with when Apple launched the iPhone? Nowadays the iPhone is a necessary -- and surprisingly affordable -- instrument in our everyday lives. Could Tesla blaze a similar trail in the auto industry? Click on the video below for further analysis.

Not only does Tesla's staying power look more likely with each passing day, but the company continues to push the envelope. Tesla's manufacturing approach is a fascinating example, with the Model S production taking place in a single factory in California. Tesla embraced the technological and economic forces that are changing the manufacturing landscape, as outlined in our special report, "The Future Is Made in America." The smartest investors understand the implications of this revolution and are investing now in the company's leading the way. To learn more, download our free report for a limited time.

Isaac Pino has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Tesla Motors. Motley Fool newsletter services recommend Apple, General Motors, 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 (5) | Recommend This Article (2)

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  • Report this Comment On June 19, 2012, at 9:33 AM, nonqual wrote:

    Telsa lost over $100,000 on every Roadster sold. They're launching a bigger vehilcle, with a bigger battery for a lower selling price and are running out of cash. But for the gubermint's bail out, they'd be history.

    They don't have "partnerships' with Toyota (nor Daimler nor Panasonic.) In each case, it's a purchaser/supplier relationship that may be symbiotic but not a partnership. (Toyota is only buying 2,600 drive-trains over the next 2.5 years.) Pay attention to what Toyota, Daimler and Panasonic are saying about the relationship. Chirp. Chirp.

    Buy the hopium, sell the fundamentals.

  • Report this Comment On June 19, 2012, at 12:12 PM, carsandplanes wrote:

    Hear, hear, nonqual. Let me add a few things to address Isaac's analysis.

    Here are a few qutes from the video that beg further scrutiny:

    “bleeding edge of technology”: So you have evaluated the most successful large-scale aluminum body line (Audi Neckarsulm facility producing tens of thousands of cars per year) and find that TSLA Fremont exceeds their capability? You have compared the Toyota power electronics facility in Hirose, having produced over one MILLION power electronics assemblies for hybrid drives at ruthlessly competitive cost, and found TSLA to be more capable?

    “stagnant for many years”: You honestly believe that processing, data acquisition systems, suspension/handling/braking, safety systems, user interfaces, etc., have been “stagnant” in global automotive markets? That a 2002 and a 2012 Altima, for example, are essentially technically unchanged?

    “we’ve already seen some deliveries”: Two cars delivered to the CEO and a founding investor. So by these standards a Lamborghini Aventador or Maybach is a mass-production automobile?

    As for the price: Notwithstanding the fact that "startup" valuations are frequently irrational, and the chart presaged a breakout above $30, the share price for TSLA is already where it should be assuming P_E_R_F_E_C_T 2012/13 execution.

    If you input all the very best predictions of TSLA's own management team (20,000 cars delivered in 2013, selling at an average price exceeding $70k, 25% gross margin, flat R&D expense, warranty reserve at half of Roadster per unit actuals, slow-boat depreciation of PP&E, etc), you will arrive at $1 share EPS in 2013 best case. So the current price is 30x forward earnings.

    That vaulation DOES NOT take into account a looming cash shortfall that will require a secondary offering, further diluting the EPS estimate.

    Yes, yes, I know: EPS doesn't matter. This is a "revolutionary" company. So, perhaps you can tell us, when DOES it matter? Next year? 2014? Or because it's "revolutionary" TSLA will be exempt rational assessment of share price?

  • Report this Comment On June 19, 2012, at 1:49 PM, JRP3 wrote:


    Tesla had no government bailout, they took a government backed loan, which they expect to start paying back by the end of this year. Musk has stated that they didn't need the loan but it allowed them to move forward more quickly.

  • Report this Comment On June 19, 2012, at 3:29 PM, carsandplanes wrote:

    JRP, perhaps it is a bit harsh to call the ATVM loan a "bailout". TSLA, GM, and Nissan all met the requirements for this Bush-era program, and all appear to be on track to meet their obligations. Likewise, it's possible that Musk genuinely believed that Tesla Motors "didn't need the loan".

    But how can one examine their curent circumstance and state that the company could have survived without DoE largess?

    Several years ago Musk had stated there would be a 4 door "Whitestar" (later named Model S) in 2011/12 before the loan was undertaken. Can you still imagine that the loan was merely a convenience to "move forward more quickly" since intentions for a 2012 sedan was already announced?

    On May 11th, Ahuja stated that Tesla had expended $360M of the $465M loan. With almost $90M in losses in Q1 and likely $100M in Q2, it's clear that the S Model couldn't happen without the ATVM program (and its magnanimous terms) underwriting the project.

    Musk has also said the company would "never" need another funding raise. I'm certain when they do, he will clearly state it's for future needs, but they don't need it now. Moreover much of his audience will accept that. Good for him; he's quite persuasive, and you're welcome to believe whatever you wish.

    Again, let me be clear that I fully understand why Tesla would accept wads of taxpayer bucks. I've done it, too (home solar). But let's not pretend that the company ever had a prayer of survival without it.

  • Report this Comment On June 20, 2012, at 12:35 AM, nonqual wrote:


    The payment will be made because the amendment to the "loan" agreement required Tesla to set up restricted cash reserves for the first three quarters' repayment installments (Tesla got rid of the debt service ratio covenants in exchange for the cash reserves.)

    Tesla would have otherwise almost certainly violated the covenants and risked a default declaration.

    Dilution is coming (and soon.) If you have to throw away your money, at least wait for the next S-1.

    It's unconscionable that Chu's minions did not get a personal guarantee from Musk. They took venture capitalist's risk with the 53%er's tax payments for pass book returns (if everything goes perfectly.)

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