Maybe I Was Wrong About Tesla

I don't like to do it, but I am willing to admit when my investment thesis about a company is wrong. Lately, the thesis I've been reconsidering is that of Tesla Motors (Nasdaq: TSLA  ) . More than a month ago, I said delays, competition, and an absurd valuation could derail Tesla's stock over the next few years. But later when I wrote about disruptive technologies, Tesla was on the top of my list. And just last week I thought Elon Musk had the vision I like to see in a CEO (although plenty of people thought Musk leaves something to be desired). So maybe I was wrong.

I still don't like that Tesla is losing money or the inevitable delays we will see in the Model S launch, but there are some qualities I find endearing about Tesla.

  • Tesla has technology that's the envy of everyone from Toyota (NYSE: TM  ) to Panasonic (who both invested in the company).
  • The Roadster and Model S both offer better range than most electric cars.
  • At a time when some electric cars have uninspired designs, Tesla's vehicles ooze sex appeal.

As much as I like Tesla's vehicles, the option of being a supplier gives Tesla the upside I like to see. After seeing details of the Ford (NYSE: F  ) Focus and its limited 100-mile range, bigger manufacturers may come knocking for parts if their EVs flop. Tesla can also offer a more complete vehicle solution to manufacturers than A123 Systems (Nasdaq: AONE  ) , which focuses on batteries and is distracted by trying to diversify the battery market.

But I am having trouble answering the question "who is Tesla?" Is it a car manufacturer? Is it a parts supplier for other auto manufacturers like it is doing with Toyota's Rav4? Is it a technology licensing company? Maybe it's some combination of all of the above? If it is some sort of electric car conglomerate, can that model really survive or is a buyout by Toyota or some other manufacturer inevitable?

Maybe all of those options and a still-developing business model are giving Elon Musk the flexibility to build Tesla into an automotive powerhouse. After all, finding the next disruptive technology requires a little faith in the company you are investing in.

Interested in reading more about Tesla Motors? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Ford Motor is a Motley Fool Stock Advisor recommendation. 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 (9) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On December 22, 2010, at 1:41 PM, GeoMetric wrote:

    The problem is most investors are blind to the ACE CARD Tesla is holding! Did you see Musk's comments on the Nissan Leaf? He explained why he said their technology is in the stone age. The reason for his comment is the technology Tesla has over the competition. Tesla's battery packs are liquid cooled, the Nissan's are air cooled. The battery pack is the most important part of an EV, air cooling is not efficient, it never cools the batteries completely. Liquid cooling is much more advanced. This is why Tesla is years ahead of the competition.

    I am a Tesla stock holder. I am in no way connected to the Tesla Car company. I build drag racing EV's for competition.

    Ron

  • Report this Comment On December 22, 2010, at 3:49 PM, tgauchat wrote:

    OK... so how long can it take for a competitor to ... surround their batteries with liquid?

  • Report this Comment On December 22, 2010, at 9:41 PM, baldheadeddork wrote:

    No, Travis, you were right to be skeptical about Tesla.

    It's share price isn't built on what a great guy people think Elton Musk is. And it isn't built on trivial (from their perspective) investments by Panasonic and Toyota. They're marquee names, but if Tesla goes tango uniform tomorrow, the losses on their investment won't even register on Toyota's or Panasonic's books. They really have nothing to lose in throwing a few million at Tesla.

    The share price isn't based on the market value of company's technology, either. Tesla can make the best damn electric cars on Earth. But that is a microscopic market and there's a lot of reasons to be skeptical it is going to grow significantly in the next decade. Range, charging times and cold-weather operation are massive issues. Tesla's superior battery cooling isn't going to help it in Philadelphia in February, and it's charge times are no better than any other EV.

    (And hybrid sales, which should be a barometer of the market for potential EV sales once the new wears off, has declined in each of the last three years. That includes 2008, when gas went to more than $4 a gallon.)

    About range, the Roadster has terrific range not because of anything Tesla did. The range comes from building the Roadster off the chassis of a Lotus Elise, which is the lightest production in the western world. Even Tesla is admitting that the Model S will weigh over 1,000 pounds more than the Roadster, and that will make its range drop substantially.

    You also can't say that the Model S has better range than most electric cars, because no one has driven it yet. It's in what the auto industry calls the "mule" stage of development, which is the first stage of testing. All they're checking for here is to make sure it won't break in normal use or try to kill its occupants. We are at least a couple of years away from having any idea of how it's going to perform when it goes on sale.

    If it ever goes on sale.

    Remember that Musk has zero experience in the car business. Even worse, he's run the company with the arrogance that knowing how to build a car wasn't necessary. He belittled the auto industry, saying they needed to learn more from him and other Silicon Valley companies than he needed to learn from them.

    I've said this about Tesla from the beginning and I don't think that people who haven't worked in the auto business really appreciate it: The biggest challenge to Musk and Tesla isn't battery technology. It's building a dash that doesn't rattle, and a floor pan that doesn't tie itself in knots when you go around a corner.

    It's really easy for people living on the coasts to dismiss auto making as a big, dumb industry, but there's a remarkable level of sophistication in building a decent new car. What Musk imagines the car business to be, that he can come in with no experience and create a new platform for half the cost of companies that have done it, is going to get you a car on par with a 1974 Plymouth.

    Tesla is jumping into one of the toughest classes in the world, and to keep the weight under 4,000 pounds they'll have to create a chassis that is much lighter than the Audi A6 or MB E-class, while not losing any strength. If they're going to get over 100 miles in range and keep the weight under 5,000 pound they'll have to use a lot of aluminum in the chassis, which is going to add another layer of complexity to the design. Oh, and this has to pass crash testing, too.

    Good luck.

  • Report this Comment On December 23, 2010, at 12:30 AM, nonqual wrote:

    Several days before the lock-up expires you suggest investors should buy this hoax because with essentially no float the price has been manipulated?????? Shills like you really need to be imprisoned. No possibility of profits for five years and kept alive with taxpayers funds because of political correctness. My regards to Jerry, you fool!

  • Report this Comment On December 23, 2010, at 6:27 AM, NikThomas wrote:

    @baldheadeddork:

    Youre right that building a car is more complex than people think, but then so is building a space rocket. Elon Musk's other hobby [www.spacex.com] seems to be doing quite well at beating the established players at their own game.

    I see that the company could go three ways: If they succeed with their long-term aims, it's a multi-bagger. If the technology works, but the market is limited, they can either remain as a small supplier of niche cars and drivetrains, or be bought up by the likes of Toyota. And if the world finds it has more oil than it needs, they could go under.

    The lesson to draw from this? Don't invest more than you can afford to lose.

    Personally, I like Tesla, both shares and products, but I'm not ready to take the additional risk and complications of USD exchange rates at this stage of my investing career. Maybe next year...

  • Report this Comment On December 23, 2010, at 6:34 AM, NikThomas wrote:

    Sorry - having jumped in via a search, I'd missd that this is the US site. I'm A UK-based investor.

  • Report this Comment On December 23, 2010, at 12:58 PM, lntwo wrote:

    Hardly an expert, but in situations where a company's value, promise, product has yet to be realized, and there is still a lot of hand waving occurring, might not a two-year option be a better play?? Less risk over a longer time horizon...

    Cheers All

  • Report this Comment On January 08, 2011, at 8:43 AM, stts wrote:

    With thousands of other stocks, there is no way Im putting my money in Tesla. Its all smoke and mirrors. A battery car works great in california. Ohio and all the cold states will put them to shame. No heat, no range, and no power in cold batteries. The hybrid is the only robust solution. And Tesla doesnt do them. All you need is bad press, and the stock tanks. Cold is bad press, tons of people forgetting to plug them in is bad press. Electrocution and explosive fire in an accident is bad press. And whay if they never make money. The ultimate bad press. Look at Palm. Massive debt. A great new product that was burried by exclusivity agreements by their competitors. Tesla has to soar in a ruthless world. All I see here is trouble comming at them from all sides. If they are like Palm, they would be lucky to get bought out to cover the debt...

  • Report this Comment On January 25, 2011, at 4:47 AM, mbdulka wrote:

    I just recently made 70% off Tesla in 3 months -- price came back down (as expected, after 180 day sell-off cool down ended for initial share holders) ... I reinvested every dime of that 70% back into Tesla.

    The haters gonna hate, but Tesla is an innovator, the cars are sexy, and when that Model S hits, its stock is gonna go through the roof (and/or they'll be hunted by the likes of GM or somebody who doesn't innovate, but is big enough to buy them with ease). So long as Musk is the CEO of Tesla, it's going to be a worthy company to invest in.

    I'm already back up 6% after 1 day ... I can wait another year and a half for the Model S -- my investment is safe.

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