Is Tesla Motors an Underdog -- or Just a Dog?

Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest guys in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.

On Motley Fool CAPS, we've also got leading analysts who find the chinks in a company's armor and correctly call its fall. Our "Underdogs" have earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market.

Today I'm looking at electric-car maker Tesla Motors (Nasdaq: TSLA  ) , which is up almost 25% from the low point it hit earlier this year, but with doubts about its suppliers mounting it's given back more than 15% from its recent run-up.

It's been an up and down ride, so if there are investors who've scored big by correctly predicting which stocks will fail, it may be worth our while to check out those they think will succeed. Yet it's hard to swim against the tide of negativity, and two-thirds of the All-Star CAPS members weighing in on the carmaker think it will lose to the Street.

Tesla snapshot

Market Cap $2.9 billion
Revenues, TTM $154 million
1-Yr. Stock Return 8.4%
Return on Investment (68.6%)
Est. 5-Yr. EPS Growth 53.4%
Dividend & Yield N/A
Recent Price $27.66
CAPS Rating *

Source: FinViz.com. N/A = not available; Tesla doesn't pay a dividend

Of course, not every short sale goes as planned, which makes shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. And you don't want to end up with fleas by lying down with dogs until you do your homework.

The spike strip for EVs
One of the roadblocks to broad adoption of consumer-oriented, natural-gas-powered vehicles is the lack of refueling stations. Clean Energy Fuels (Nasdaq: CLNE  ) is in the process of building out a nationwide network of stations but it hasn't been fast enough yet to develop a critical mass.

On the surface it's a similar situation for electric vehicles. Limited by the charge their batteries can hold, EVs are an impractical vehicle for long-distance driving. Without recharging stations -- and ones that can do so quickly -- the market will forever be stuck as a niche product. As cool as the concept is, the EV is largely eyed as a technology not ready for prime time. Even the Congressional Budget Office thinks they're a waste of money.

Tesla hoped to change the industry's stodgy image by introducing the ultra sleek Model S. While that hasn't been a marketing success yet, Tesla wants to push the market further with a system of supercharging stations that would allow you to drive cross country for free. They're cropping up in California now, but company founder Elon Musk says they'll cover the U.S. in two years.

An industry up on blocks
But like the overhyped promise of the EV, this seems to be another pipe dream. Tesla just announced it was cutting its revenue forecasts for the year to almost half of what Wall Street was expecting and cutting the number of cars it would produce this year. Toyota (NYSE: TM  ) is abandoning plans to mass produce electric vehicles, General Motors (NYSE: GM  ) can't move it's Chevy Volt off the lot unless it bribes buyers with huge cash incentives, and Nissan Leaf sales are down 31% year over year and fell 50% in August.

Many of the problems can be laid at the doorstep of the carmakers' suppliers, namely the battery makers. While they were the biggest winners of the government handouts -- they received three quarters of the $2 billion targeted to the industry and handed out as part of President Obama's stimulus spending program -- but they've largely gone bankrupt or are otherwise failing. Valence Technology, A123 Systems, and Ener1 are symbols of what's wrong with the industry. It's the failure of the battery makers that's prodding Hyundai to go with fuel-cell technology for its vehicles, as is Honda (NYSE: HMC  ) , which plans to build a fuel-cell EV in 2015.

Money ain't cheap
Telsa is having monetary troubles related to its own government loan and may have to pay it back early. It got a waiver for its existing terms earlier this year, but because of liquidity concerns, it notified the SEC it would be raising money through a secondary offering of 4.3 million shares. It may provide the funding it needs, but dilutes current shareholders.

I foresee more troubles for Tesla if for no other reason then there's just not enough demand for EVs, let alone high-priced ones like Tesla produces. I've rated it to underperform the market indexes on CAPS, but tell me in the comments section below if you think the secondary will give it the green light for growth.

There's no need to fear...
Natural gas has a better shot at ubiquity than EVs do and that will be as a result of Clean Energy Fuels, which is poised to make a big impact on this essential industry. Read all about Clean Energy Fuels in the Motley Fool's brand new report and drive off with a year's worth of. Just click here to get started.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Clean Energy Fuels and Tesla Motors. Motley Fool newsletter services have recommended buying shares of Clean Energy Fuels, General Motors, and Tesla Motors. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | 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 September 26, 2012, at 6:20 PM, nonqual wrote:

    Musk is over-extended and over his head. The capital raise is incrementalism at its worst; it should have been about 5x higher.

    Musk overestimates the GM on the Roadster by 100% (30% vs <15% actual) and the number of Tesla employees ("nearly 3,000 vs 2,580.) He's out of touch with the company he is supposedly managing.

    You nailed it regarding demand, After the early adopters are satisfied, the general public will not spring for an over-priced, inconvenient status symbol, particularly when Tesla offers no economic trade-in or lease programs.

    Stick a fork in this corpse, it's dead but it will take the street several years to recognize the stench.

  • Report this Comment On September 26, 2012, at 8:40 PM, mythshakr wrote:

    Natural gas dumps >70% of the CO2 as oil and >56% as much as Coal into the atmosphere. Those are the numbers I care about. It's just killing us a little bit slower. As a replacement for coal in power plants? Great. As a replacement for oil in automobiles? Not so much.

  • Report this Comment On September 26, 2012, at 9:06 PM, mythshakr wrote:

    Natural gas dumps >70% of the CO2 as oil and >56% as much as Coal into the atmosphere. Those are the numbers I care about. It's just killing us a little bit slower.

    As a replacement for coal in power plants? Great.

    As a replacement for oil in automobiles? Not so much.

    Tesla's Superchargers are solar powered. So the possibility of driving across country not just for free but with 0 emissions I think adds value to both the cars and the company.

    Contrarily, even though I am long on Tesla I can't for the life of me figure out why the stock almost doubled from Its post IPO low when the company has yet to make a profit.

    But, I also bought 400 shares of Apple at $12 and change in 2002 when the world said it was dead and that investment has turned out pretty well for me.

  • Report this Comment On September 27, 2012, at 5:28 PM, nonqual wrote:

    The solar panels over the parking spaces are for show. Unless there is essentially no usage of the "Superchargers," net energy will be drawn from the grid rather than fed into the grid.

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