Tesla Motors Is Trying to Prove History Doesn't Repeat

It's tempting to think car companies such as Tesla Motors (NASDAQ: TSLA  ) and Nissan (NASDAQOTH: NSANY  ) were the first to introduce electric vehicles to world. Of course no car company before them has been able to bring such technologically advanced electric cars to the mass market -- or sell as many as they have -- but the electric car has had a long history before these two companies came into existence.To fully understand today's electric automotive market, let's look at how electric vehicles got their start.

In the beginning
According to PBS, Scottish inventor Robert Anderson built the first electric car somewhere between 1832 and 1839. Unfortunately for Anderson -- and the budding horseless-carriage industry -- rechargeable batteries weren't invented until 1859, posing some serious hurdles for the electric car.

In the United States, electric cars, or EVs, burst onto the scene in 1891, when William Morrison built the first electric automobile in the country. Six years later, New York City introduced the first electric taxis built by the Electric Carriage and Wagon Company -- later called the Electric Vehicle Company. The taxis were able to run all day by swapping out batteries (sound familiar?) and charging up every few hours. In its prime, the Electric Vehicle Company operated the largest electric-vehicle assembly plant in the world and had more than 2,000 electric vehicles in its fleet -- but an undersupply of batteries and problems updating the electric technology caused the company go out of business in 1907.


The Electrobat car was the basis for the Electric Vehicle Company's taxicabs. Photo: public domain.

In 1900, about 28% of the more than 4,000 vehicles produced in the U.S.  were powered by electricity. But a combination of mass-produced Model Ts, the invention of the automotive electric-start, the lack of electric range and horsepower, and the gasoline engine's prevalence virtually killed the idea of the electric car.

The resurgence, and death, of the electric car
In the 1970s, several government agencies became interested in the environmental and political benefits of electric vehicles, with the idea that EVs could reduce emissions and wean us off foreign oil at the same time. Around that time, the U.S. Postal service bought hundreds of electric vehicles from AMC, and Congress passed the Electric and Hybrid Vehicle Research Development and Demonstration Act in pursuit of better batteries and electric motors.

But years before the Arab Oil Embargo, General Motors (NYSE: GM  ) was experimenting with the battery-powered Chevrolet Electrovair. The company made two versions of the vehicle, with an electric range of up to 80 miles, but never brought the vehicles to market. Over the next 30 years, GM experimented with the 512 Series, the Electrovette, and other prototypes -- but it wasn't until 1996 that it introduced the infamous EV1.


EV1 cars. Source: Plug in America (Creative Commons license).

The car was leased to customers on a three-year term, and the second-generation vehicles had a 125-mile range. It was built primarily to meet a California zero-emissions mandate, but when state regulations were changed, GM let customer leases expire and killed off the vehicle in 2003. The EV1 cost GM a total of $1 billion in the end.

A hopeful return
Even with the electric vehicle's difficult past, it's not hard to imagine its future is on the mend. This year Tesla's all-electric Model S received a score of 99 out of 100 from Consumer Reports, was named Automobile Magazine's 2013 Automobile of the Year, and is the 2013 Motor Trend Car of the Year. The company just made it through its second profitable quarter -- a major feat for a young electric-car company -- and its stock has surged 370% since the beginning of the year. Tesla now has a valuation of $20 billion -- almost half of General Motors' market cap.


Tesla Model S. Source: Tesla.

Though Tesla is projected to sell 21,000 Model S vehicles this year, it's just a fraction compared with Ford's (NYSE: F  ) sales of 1.5 million in the U.S. already this year. But the vehicle sales comparisons aren't completely fair -- with Tesla being a much smaller and newer company -- as well as selling just one vehicle in its lineup right now.

But Tesla's not the only company pushing the electric car back into relevance. Last month Nissan sold nearly 1,900 of its electric Leafs -- 372% more than it did in July of last year -- which brings the total to 11,703 Leafs sold so far this year. Nissan says the car is the best selling EV in history.


Nissan Lead NYC Taxi. Source: NYC Taxi and Limousine Commission .

Just as with the beginning of the electric vehicle back in the early 1900s, the Leaf is currently being used as a taxicab in New York City as part of a one-year pilot program. The Leaf taxicabs have have the same shifts as gasoline-powered cabs and take advantage of quick charging stations in the city to replenish batteries to 80% in just 30 minutes. Hopefully these electric-powered taxicabs will have a longer history than earlier EV cabs. 

It's important to point out that in addition to the companies we've mentioned, automotive manufacturers such as Honda, SMART, BMW, Ford, Toyota, Mitsubishi, Fiat, and others either have EVs on the road now, or have them in the works. While the automotive industry has taken a while to turn the tide -- at lease partly -- back to electric vehicles, it still has a long way to go. As the EV industry grows, consumers -- and investors -- will need to see battery costs decline and consumer demand increase. Both of these factors are paramount in keeping electric vehicles on the road and avoiding EVs' troubled past -- but for now it seems things are moving in the right direction.

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Read/Post Comments (21) | Recommend This Article (4)

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  • Report this Comment On August 31, 2013, at 12:20 PM, aholli5 wrote:

    This article fails to inform what Car and Driver just published: every electric car sold in America, including by Tesla, is being sold at a loss. Even after federal tax incentives, each car sold represents a $10-30K loss to the manufacturer. The reason they continue to be built, and that manufacturers are trying to sell them as fast as possible, is in response to government intervention through a cap-and-trade model, where companies like Tesla can count their electric vehicle sales against their CAFE, or sell the credits to other companies. For Tesla, this government tinkering is the only reason they are making a profit.

  • Report this Comment On August 31, 2013, at 12:38 PM, BatteryWaste wrote:

    Everyday another telsa article coming from this crowd. And yet this car company hasn't even earned it's first dollar and to these liberal propaganda pushers, they make telsa a GOD!

    Time to wise up Motley fool, find something worthy of a pen an paper to write about.

  • Report this Comment On August 31, 2013, at 12:48 PM, realist2013 wrote:

    Putting aside the comments above (with which I agree) one has to question the market for the Tesla. Sure it sells for a small fortune to a few rich west coast environmentally-conscious drivers. But how many rich environmentally-conscious drivers are out there? Sooner or later the market dries up and so goes Tesla. While a bunch of investors buy into the hype (without apparently doing a lot of thinking) and drive the stock price up, with the price where it is, I'd be shorting it big time. Sooner or later $0 will be the target.

  • Report this Comment On August 31, 2013, at 1:24 PM, duuude1 wrote:

    Duuudes! Just curious what your issue with Tesla is?

    Is writing "electric vehicle" like waving a red flag in a cow pasture?

    Are you duuudes aware of the kick-ass performance these first two Tesla vehicles demonstrate? Here's a review by Road and Track:

    http://www.roadandtrack.com/car-reviews/road-tests/road-test...

    And instead you complain: "this car company hasn't even earned it's first dollar"...

    Are you aware that TMF profiles emerging kickass companies that we might want to invest in - companies that at first don't make profits (sometimes for long periods of time) like NFLX and AMZN, but that in the long term can kick some very complacent industries (entertainment and retail in these examples) in the behind?

    But you say "Sooner or later the [few rich west coast environmentally-conscious drivers] market dries up and so goes Tesla"...

    Are you aware that Tesla is aiming at the broader market of middle-class buyers, not just the wealthy, and that is what will really upend the complacent auto industry.

    And that is what will make us some serious cash duuudes. I don't let immature political opinions from either side get in the way of making money duuudes... key your eyes and brains open.

    Duuude1

  • Report this Comment On August 31, 2013, at 1:26 PM, djangojazz wrote:

    I think the comments above are hysterical for three super obvious reasons:

    1. If you are hoping to make money in a NEW industry you will operate at a loss. To think that everything new makes money immediately and people want it right away is a fantasy. You need to build up demand and then if it is a demand people want, people buy it. By the posters above Apple should have never invented the IPod because it did not make money the very first day it existed. Same with the PC or before that the internal combustion engine. To live in a world were nothing new should ever be made and tell everyone that things are only sensible if they make money immediately is to have the technological forsight of a dinosaur.

    2. Demand for the car does exist and they cannot meet production. In every article or if you ever followed the history of Tesla and Elon Musk he put money first into his roadster model which was comparable to a Lotus Elise and was even featured on Top Gear where they stated it even handled better. The issue was usually not positive critism but a negative reporter always claiming 'the battery does not last as long as stated'. Elon Musk even went through great efforts to record data and prove that many of these stories the person drove the car harder and longer than they stated. The issue is not the car is bad or not making money it is that money needs to be poured into more capital to make more charging stations and cars. That is growth, not decline

    3. The issue that people are claiming the 'loss' on is that in many cases in a rush to get cars out in leases and financing they are claiming the total cost up front rather than what they 'actually have' so by GAAP standards they are at a loss but by sales they are doing very well. The government tax incentive is estimated very broadly from articles between $5000 to $35000 per vehicle but the personal amount of tax credit per person is not in that estimate. The funny thing about this: "government helps these guys unfairly!" How about you look at how much the government gives companies in fossil fuel subsidies every year? All the green subsidies put together don't equate to just that subsidy. So to say that the car industry of internal combustion engines is more profitable. Yes it is, but it has been around for over a hundred years and also has fuel subsidized. In this model the car itself is subsidized and fuel quality is dependent on the area it gets electricity. If it gets its electricity from a coal powered grid, it could actually not be that clean. But if it was to get its power from solar or another green tech it would be very clean.

    I like the comments by the people against technology with the argument of cost. Clearly we should all be riding cars, err nope, err trains, err nope err horses. Because anything new must make money right away as an argument of worth. Elon Musk made over a billion alone on the sale of PayPal, maybe you can argue about how that technological company was a waste and how everything should never advance till it makes money and only by magic worth compared to large monopolies that ALSO get huge subsidies.

  • Report this Comment On August 31, 2013, at 1:30 PM, DivingDog1 wrote:

    My drive time requirements suggest that a Model S Tesla would be a very good investments for me and my family, Living on Florida's west cost will also allow me to take advantage of my current PV Solar power system as a useable recharge station. As stated before Electric vehicles are not for everyone and good judgment should be used,

    Peace

  • Report this Comment On August 31, 2013, at 1:32 PM, gigglehertz wrote:

    aholli5: Other than the Model S and the LEAF, all other EV's are money losers due to the fact that they are extremely limited runs designed not to sell well but to merely comply with California's CARB rules. I'm sure a financially astute Motley Fool reader such as yourself understands the importance of amortizing the development costs of a new model over a long and productive lifespan of a vehicle, thereby decreasing per-unit costs, and increasing profitability. If however you only intend to sell 1800 a year and only in one state, then your per-unit costs skyrocket and yes, becomes a money loser. Not because "nobody wants them" but because it was never intended to be successful or profitable. Ever see a commercial for a Rav4 EV or a Fiat 500E? Or is it even for sale outside California? Nope, because they aren't interested in selling a lot, just complying with CARB until they can lobby to have it overturned, just like they did in the 90's. CARB credits played a big role in Tesla's profitability last quarter but it is understood that that will diminish going forward but it does not matter much as production and sales ramps up. Tesla anticipates a 25% margin on the S by year's end.

    BatteryWaste: stock prices aren't driven by current profit but by promise of future profitability. Developing Motor Trend's Car of the Year (and safest car ever tested) took a lot of money, as did building out a completely independent nationwide network of showrooms, service centers, and Superchargers. All this costs money and weighs on the bottom line, but once that is achieved and sales begin in Europe and Asia, and a next gen more affordable $35,000 car comes out in 3 years, that long term investment will pay off in a big way.

    realist203: The Model S is a luxury vehicle, and is selling very well among that class of buyer. Spend some time on a Tesla message board and you'll see it's not eco-hippies, but well off people who enjoy it for a superior driving experience.

  • Report this Comment On August 31, 2013, at 1:56 PM, jamesdan567 wrote:

    There are many people who lose their job due to the rapid adoption of the EV, which is more than 400% lower cost to operate than the ICE car. It is these people who are afraid of the EV and who attempt to spread lies.

    Reality wins out. I remember when lots of people said Apple would never make it too. LOL

  • Report this Comment On August 31, 2013, at 2:13 PM, Raixie wrote:

    One thing the article do not mention, is that in 1900 most automobiles were powered by steam, followed by electrics, and not so many ICE cars.

    After all steam dominated the entire 19th century!

    In the late 19th century john d. Rockefeller built his first empire by replacing whale fat lamps by kerosene. But around 1905 Rockefeller was loosing his market to the Edison's new electrical lightbulbs. He didn't want the same to happen with his other market : combustion engine. I feel that he got very near Henry Ford and "helped" developping his R&D department...

  • Report this Comment On August 31, 2013, at 3:46 PM, clarkvera wrote:

    Technology grows by leaps and bounds, it is not a matter of IF the electric care will come to fruition, but a matter of WHEN. Now is as good a time as any. This is be the beginning of the end of the significance of thee middle east by the year 2020, things will have changed significantly and the big oil companies will lose their dominance over our political engine. Clark Vera

  • Report this Comment On August 31, 2013, at 5:40 PM, BayCountry wrote:

    I can't understand why Fools keep pushing Tesla. When reality sets in this stock is going to plummet. For most people electric cars just don't make any sense. Especially one that sells for double a comparable gas car.

    People keep talking about range to work and back. What if you want or need to go out again? You can't just pull off the next exit and juice up.

    Maybe it should come with a prescription for anti-anxiety medication for when you're sitting in a traffic jam wondering if you'll have the juice to make it home.

  • Report this Comment On August 31, 2013, at 6:00 PM, TMFBiggles wrote:

    Chris,

    Good historical perspective. I'd like to add some of my own historical perspective as well:

    First EV patent: http://www.fool.com/investing/general/2012/12/08/the-first-c...

    Decades of broken optimism: http://www.fool.com/investing/general/2012/01/06/americas-sa...

    Comparing EV and gas-engine adoption rates: http://www.fool.com/investing/general/2013/06/23/everything-...

    - Alex

  • Report this Comment On August 31, 2013, at 6:24 PM, Lazarus8862 wrote:

    There is no doubt that Tesla has produced an amazing vehicle regardless of the power source. Unfortunately, the prices are far beyond the reach of the average person. Shockwave Motors has taken a different approach. They have designed and performance tested an all-electric roadster that is sporty, but not a true sports car. The production version will have a top speed of over 75 MPH and a daily range of 200 miles. The electric roadster is designed to be a safe and dependable vehicle for the commuter who wants to drive to work and back with a little style and class – but not have to mortgage their home or be independently wealthy to buy one. When in production in a few months, the low cost roadster will retail for less than $25,000 (before any tax incentives are considered). The roadsters will be profitable and not have to depend on selling green tax credits to other manufacturers to make a profit.

  • Report this Comment On August 31, 2013, at 6:30 PM, Desktopguy wrote:

    It all well be fun and games until that pesky sun decide's to spit out another Flare that will burn or fry everything electric!!!!!!

  • Report this Comment On August 31, 2013, at 7:17 PM, fpl1954 wrote:

    Electric cars have always been successful within a niche market. The EV1 was extremely popular with owners. They aren't yet practical for most people, but eventually they will be. The hurdles to full applicability aren't technically difficult at all, basically a few minor changes to the car, then building out the support infrastructure. The problem is building the support infrastructure is VERY expensive. Gasoline cars have 100 years of support infrastructure is VERY expensive. Reliable gasoline powered cars were available for about 50 years before the support infrastructure was adequate to allow trips further than the range of a Tesla. It's not unreasonable to expect a similar curve for electric cars. Anywhere near the Tesla factory by 2010, anywhere in California by 2020, anywhere west of the rockies by 2030, then all over the USA by 2040.

  • Report this Comment On August 31, 2013, at 7:56 PM, lbjack wrote:

    Completely lame article making the same old points, followed by Luddite comments -- or those with vested interests in gas cars -- betraying utter ignorance about what is going on.

    Tesla is a paradigm changer and a disrupter. It's led by a visionary genius. It makes a car that's better than any other car in its price class. But this car, the Model-S, was never intended as the end product. Call it a proof of concept. The concept has been proven, instantly rendering ICE cars boring and quaint.

    Investors are not just money grubbers. They want to participate with Elon Musk -- the want to finance Elon Musk -- in creating a revolution. For the first time ever, the best car in the world is American. Daimler sits on the Tesla board. Toyota is a customer. Elon Musk is not the next Steve Jobs; Elon is the next George Westinghouse, and its been so long since we've had someone like him that few have a clue what that means.

    PE or PEG or other conventional metrics are meaningless applied to TSLA. They are products of analysis. TSLA is about synthesis. It's what adds value far in excess to what the numbers tell you.

    All you TSLA bashers, I implore you: short the stock. I really want you to hurt.

  • Report this Comment On August 31, 2013, at 8:27 PM, fangzamillion wrote:

    Electric cars are really taking off at last. I expect to actually see one on the road any day now. Maybe...

  • Report this Comment On August 31, 2013, at 9:17 PM, luckyagain wrote:

    If you drive 15,000 miles a year and have a car that gets 25 mpg, then you will use 600 gallons. Since the price of gasoline seems to change almost daily, trying to determine what a gallon will cost tomorrow is impossible. That said the average car is 11 years old and has used 6600 gallons of gasoline which has cost somewhere between $13200 and $26400. Since no one can predict the future price of gasoline, while electricity is much easier to predict. If the price of gasoline doubles in the next 11 years, then the cost to drive a car will be between $26400 and $52800. Maybe electricity will double in the next 11 years but electricity has a much more predictable cost than gasoline can ever have. Also anyone who owns a house can at least produce some electricity via solar panels, while almost no one can produce any gasoline.

  • Report this Comment On September 01, 2013, at 8:06 AM, TMFNewsie wrote:

    Thanks for the comment and for the links TMFBiggles!

  • Report this Comment On September 01, 2013, at 10:39 AM, brian2md wrote:

    I can understand the negative comments about purely the stock price of Tesla. I would like to see if all the people who promise the stock price of Tesla will plummet to zero are actually shorting the stock, after all it would be a guaranteed 300%+ gain. Now compare that to all the people who are pro Tesla. My guess, and it is just that, is that the percentage of 'fans' who are actually invested in the stock (long) far out paces the negatives.

  • Report this Comment On September 04, 2013, at 3:41 PM, nokeyes2 wrote:

    Please watch the videos on youtube of the Model S being crashed tested by the NHTSA,safest car ever tested by this agency,no other vehicle has ever gotten 5.4 stars rating,ever.The car performed so well it could not be made to rollover because the battery pack being under the floor pan provides it with an extremely low center of gravity.So it would seem that Elon Musk is not too far off the goal of making the best car in the world,is he?

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