What's Next Zipsters? Tesla Has Growth, Technology, and Cars, Too!

Jason is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you invested in Zipcar (UNKNOWN: ZIP.DL2) any time from the IPO until last spring, chances are the recent announcement by Avis Budget Group (NASDAQ: CAR) to acquire Zipcar for $12.25 per share in cash has left you with a bittersweet taste in your mouth.

While that’s nearly a 50% premium over the closing share price the day before the announcement is nice, there are many of us that are left with an overall loss and more than a little frustration that the company sold for less than the IPO share price. 

But we have to take the good with the bad, right? Let's take a look at past year as a reminder of how investing in budding growth stocks- especially ones that aren't profitable (yet) and trying to disrupt other industries- can be very volatile:

ZIP data by YCharts

As the chart shows, investing in companies that are changing their little corner of the world can be very volatile.  Add in that 2012 was very tough on growth stocks as investors continued to buy established companies with strong dividend records, and it hasn't been easy to make money in the little guys.  

Wait.  It actually looks like this summer was a great time to buy.

True.  As the chart above shows, an investment in Zipcar, Facebook (NASDAQ: FB) or Tesla (NASDAQ: TSLA) in August or after would be a money-maker today, and for those of you that invested in Zipcar, you are getting the chance to take your money and run. 

So where to?

If you were invested in Zipcar, there is little to no reason for you to take your cash and invest it in Avis Budget:

CAR Revenue TTM data by YCharts

It's all about growth potential, and frankly, you will not see that kind of potential with Zipcar being part of Avis.  Zipcar's TTM Revenue is about 1/25 of Avis Budget's, so just let go.  It's time to move on, and I'm hitching on to Tesla.  I suggest you do the same. 

Electric Cars?  Again?

Okay, so electric cars have been around for a long time- as long as there have been automobiles, actually.  But since the advent of cheap petroleum-based fuel, there has been no need, or demand, to replace the internal combustion engine.  But as the price of oil has increased, concern about human-affected climate change has become more mainstream and accepted, and battery technology has improved (thanks in part to the mobile computing boom,) it has become both economically viable, and maybe more importantly, no longer an inconvenience, to own an electric car.  And many in the automobile world have taken notice:

From Automobile Magazine, naming the Model S 2013 Car of the Year:

​"We weren't expecting much from the Tesla other than some interesting dinner conversation as we considered "real" candidates like the Subaru BRZ and the Porsche Boxster. In fact, the Tesla blew them, and us, away."

Later in the article:

​"But the most important factor here is that, more than any electric car that has come before it, the Model S feels and drives like a gasoline car of the same price. 'There's still a lot of novelty in driving an EV,' says senior editor Eric Tingwall, 'but with the Model S, that's no longer the only reason to drive one.' "

The quote above says a lot.  The fact of the matter is that the Tesla Model S is the first electric car that can compete head-to-head with cars just as expensive in terms of performance and appointment, and with a functional battery life to support all but the most extreme of daily commutes.  And when one is capable of spending $50,000+ on an automobile, chances are there's a SUV in the garage for the trip to the lake with the kids anyway. 

From Motor Trend 2013 Car of the Year article:

"The mere fact the Tesla Model S exists at all is a testament to innovation and entrepreneurship, the very qualities that once made the American automobile industry the largest, richest, and most powerful in the world. That the 11 judges unanimously voted the first vehicle designed from the wheels up by a fledgling automaker the 2013 Motor Trend Car of the Year should be cause for celebration. America can still make things. Great things."

The pick by Motor Trend is important to note, since all of the winners since 2010 feature some version of "green" technology under the hood, from the hybrid-powered Ford Fusion in 2010, the Chevy Volt in 2011, and the 2012 Volkswagen Passat's 40+ mpg TDI engine. 

Great.  A couple of awards and we should throw our money away because some rich people can buy an electric car now?

That misses the point.  Yes, the Model S is a luxury car, but in many ways that will make many investors miss what the future of Tesla will look like, and what Tesla's Founder, Elon Musk's vision really is.  From the Tesla website (bold italics mine):

"Tesla’s goal is to accelerate the world’s transition to electric mobility with a full range of increasingly affordable electric cars. We're catalyzing change in the industry. Tesla vehicles and EVs powered by Tesla are fun to drive and environmentally responsible."

In a nutshell, the Model S is just the beginning, where the Roadster was a proof of concept.  The Model X SUV is set to launch in 2014, disrupting the SUV and Crossover segments in much the same way that the Model S has shaken up the Performance Sedan world.  And it's fair to visualize this disruption will continue as technology improves, manufacturing scale increases, eventually making it economical to produce electric cars that can compete with the Toyota Camrys and Volkswagen Jettas of the world. 

Okay, so there's a chance Tesla succeeds.  But this is a very risky proposition.

Yep.  No doubt about that.  Tesla is certainly a bold investment:

TSLA Free Cash Flow TTM data by YCharts

 As the charts shows, building cars burns a tremendous amount of cash.  Yet as scary as the number looks on this chart, with the Model S in full production, the next couple of quarters promises very different numbers. Musk announced on Twitter recently (link requires wsj membership) that Tesla is now cash-flow positive, based on the number of Model S' being produced and sold.  On the flip-side, any problems with production or slowing of demand would very likely see the share price crash and burn like a 1978 Ford Pinto, as fixed operating costs burn up shrinking revenues.  But the sales results don't show that happening. 

Speaking of Musk, the guy has too much on his plate.  Can we count on him not losing focus?

Elon Musk may be a once-in-a-generation visionary, along the lines of a Steve Jobs or a Henry Ford.  A billionaire twice over, what Musk has accomplished short of his 42nd birthday, is truly amazing.  While he is also currently CEO of Space X and the recently-IPO'd Solar City, frankly the fact that Tesla is one of Musk's ventures is a large part of why I am invested.  Yes, he is running three very different businesses, but there is much evidence to support one of Musk's strengths as being his ability to surround himself with highly talented people, and then get out of their way.  With that said, there is little doubt that Musk's vision is the driving force behind Tesla's success and future. 

Okay, Let's say I'm interested.  Why now?

Shares are up is up nearly 28% over the past year, and less than $1 from the all-time high.  Heck, the price is up nearly 20% in the past couple of months alone

Yes, that makes it seem like buying today, at a high price is a bad idea, but those numbers have very little to do with what the future holds.  Production has only hit a capacity to support positive cash-flow in the past month.  Essentially every single price movement since the IPO has been 100% speculation.  And while the future is still very uncertain, the company has shown that there is enough demand today to generate enough cash to support operations, and that bodes incredibly well for the future.  I intend to add to my existing position in Tesla with the proceeds from my Zipcar shares, maybe as soon as The Fool's trading rules allow me to.  Could the price go down at some point?  Sure, and I would bet that it probably will.  But I'm not planning on selling that day.  I'll keep my shares, and look forward to the day that Tesla nets me a ten-bagger. 


elihpaudio owns shares of Tesla Motors and Zipcar. The Motley Fool recommends Tesla Motors and Zipcar. The Motley Fool owns shares of Tesla Motors and Zipcar. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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