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Is This Electric Car Worth Waiting For?

Motley Fool analyst Rex Moore is just back from a visit to the Tesla Motors (Nasdaq: TSLA  ) showroom in Washington, D.C., where he was able to test drive the exciting new Model S sedan. 

On some levels, the Model S competes with the Nissan Leaf, Ford (NYSE: F  ) Focus Electric, Honda (NYSE: HMC  ) Fit Electric and, of course, hybrids like the Toyota (NYSE: TM  ) Prius and General Motors' (NYSE: GM  ) Chevy Volt. But those vehicles address the "lower end" of the electric and hybrid market. Tesla's roomy sedan, on the other hand, does zero to 60 in 4.4 seconds, is packed with luxury features, and the fit and finish is outstanding. It is, therefore, really competing with luxury vehicles from BMW, Mercedes, and Audi -- as its $50,000 to $90,000 price tag would suggest. 

Tesla's stock price recently took a hit when management lowered its revenue forecast because of a slower-than-expected ramp-up for the Model S. Bears also point to other issues, such as how drivers will negotiate long road trips if their cars only have a range of 100 to 300 miles, depending on the model. 

But, because we're in the extreme early phases of the electric car revolution, Rex says that's just short-term noise for long-term investors. As far as any early production problems for the Model S, founder and CEO Elon Musk says he has intentionally slowed down production until a number of minor issues are resolved, such as the fit of certain interior items. After that, Musk says production will ramp up and hit at least 20,000 units in 2013, with a gross margin exceeding 25%. In addressing the range issues, Tesla is taking a cue from Clean Energy Fuels, which is rolling out a nationwide network of refueling stations for natural-gas-powered vehicles. Tesla has already opened up a network of recharging stations between Los Angeles and San Francisco, and you can expect more stations across the country. 

Rex says Tesla -- designed from the ground up as a different kind of automaker -- will have greater success in the electric vehicle space than Ford, General Motors, and the other big names that have long-established and deeply entrenched ways of producing vehicles. This is especially the case with more expensive, higher-margin cars. 

With projections of cash-flow breakeven by the end of the year, Rex says this small, $3 billion company seems very well positioned for investors with a long time horizon -- and he's backing his opinion with a thumbs-up CAPScall. 

Is the Model S a car you should consider buying? In part three of this series, Rex talks with Tesla's Will Nicholas about the ideal owner of these technologic marvels.

Besides Tesla, there's another company benefitting from a huge technology edge. The Motley Fool has compiled a new report called "The Only Stock You Need to Profit From the NEW Technology Revolution." The report highlights a company that has gained 300% since first recommended by Fool analysts, but still has plenty of room left to run. Thousands have requested access to this special free report, and now you can access it today at no cost. To get instant access to the names of this company transforming the IT industry, click here -- it's free.

Rex Moore has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and Tesla Motors. Motley Fool newsletter services recommend Ford, 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.

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  • Report this Comment On October 13, 2012, at 10:29 AM, nonqual wrote:

    "With projections of cash-flow breakeven by the end of the year, Rex says this small, $3 billion company seems very well positioned for investors with a long time horizon."

    Rex apparently doesn't bother to analyze income statements, balance sheets, and cash flow statements. If you think there is a long wait for the vehicle, try waiting for the company to make a profit. Around the end of the month Tesla will report a quarterly loss of around $120 million pushing its accumulated deficit to about $1 billion (it has NEVER reported a profit.)

    "Musk says production will ramp up and hit at least 20,000 units in 2013, with a gross margin exceeding 25%." At this stage of the Roadster roll out, Musk said they would sell 2,000/ year; they've sold 2,350 in four years. Musk also said Roadster gross margin was "around 25-30%." If Rex had bothered to read the income statements, he would have learned Roadster gross margin has been less than 15%.

    The "environmentally friendly" myth is also being debunked by peer reviewed scientific studies. "EVs powered by the present European electricity mix offer a 10% to 24% decrease in global warming potential (GWP) relative to conventional diesel or gasoline vehicles assuming lifetimes of 150,000 km. However, EVs exhibit the potential for significant increases in human toxicity, freshwater eco-toxicity, freshwater eutrophication, and metal depletion impacts, largely emanating from the vehicle supply chain." See:

    One investment analyst extended that study's methodology and findings to Tesal and concluded:

    "...increasing battery capacity from 24 kWh in the basic BEV to 40 kWh like you find in an entry level Tesla Model S effectively eliminates the life cycle emissions advantage. While a BEV-24 will reduce emissions by roughly 16% over the life of the vehicle, a BEV-40 will only reduce emissions by 3%. If you upgrade to a BEV-60 to combat range anxiety you suffer an emissions penalty of 13.6% and if you upgrade to a top of the line BEV-85 the emissions penalty rises to 34.3%." See:

    Tesla is a money losing, cash consuming operation trying to force fit pedestrian battery technology into a transportation application while being supported by corrupt crony capitalism. Caveat Emptor.

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