Timing, Safety and Trends
James is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I've never read anything about Tesla Motors (NASDAQ: TSLA) quite like I will write here. I hope you agree.
Elon Musk is a self made billionaire and the Founder. He is young (41). He has a track record of great business success (he helped found and sell Paypal to eBay) and business partners. Unfortunately, his record on personal partnerships (marriages) is lame. So, let's let these facts stand on their own.
I've read estimates the batteries powering the S model cost $500 per kW. I have read Mr. Musk speculate that will decline to $200 per kW. In either case, the cost is uneconomical for an electric vehicle ("EV"). Battery replacement at 150,000 miles or so (they are warranted 8 years/100K miles), would, for an 85kW model, be $17,000. How many people do you know want to drop $17K into their 8-10 year old used car? Zero would be a reasonable assumption, if you are like me. Who would want to buy a luxury Tesla Model S with 150K miles and needing a new $17K battery? No-one. Go over to Carmax.com and see how many used cars are for sale without an engine. See my point? The point is presently, a Tesla S model at 150,000 miles is worthless, unlike a comparably priced used Mercedes with comparable condition and mileage. Getting production going well is a finer use of time right now, to me. I think Mr. Musk will find or has found a way to address this end of life problem in an elegant way.
Tesla's charging stations let Tesla car owners recharge for free. Really? Yes. Can that last? Yes it can. 200 miles average on 85kw hours of battery at $0.10 per kwh over 150,000 miles is roughly a $6K lifetime cost. Assuming an S model owner will pay for his own electricity half the time, thats $3K. Fairly easy to cover this freebie, I'd say.
What dealers? Every major competitor of Tesla has a dealer network. A dealer network is like an albatross around your neck these days. Tesla has eliminated cost by going straight to the consumer. Tesla has reinvested some of this savings by giving Tesla car owners free electricity. See above.
The Charging Stations
Solar City installs solar panels for the charging station batteries. Solar power should power EV's. That only makes sense. Mr. Musk is the Chairman of Solar City. Elon Musk is in the fuel / energy generation business too. Believe me, consumables is a wonderful business to be in. (Just look at your gas bill if you doubt me)
The International Space Station
Who built the rocket that was the first private rocket to make deliveries to the ISS? Space X. Who is the founder and chief technology officer of SpaceX? Mr. Musk, again. Now what is he up to? 3 things:
A. Space X is a motor vehicle production company. Isn't that what Tesla is? The rocket...yes, that's just a big truck to me. It has a motor, its a vehicle and its produced by SpaceX. The two businesses are synergistic.
B. Now, last time I read, it takes lots of rocket scientists to build good rockets. Can anyone imagine what would happen if a lot of great ideas about building space trucks is available to an auto company like Tesla?
C. NASA cut their cost per pound ( I hope ) to deliver stuff to the ISS using SpaceX. In this budget era that makes Mr. Musk a red carpet buddy of this US government agency. That can come in handy down the road....more below.
When was the last time you saw the letters "GM" on the side of a missile heading to outer space? How do you match that GM? Ford (NYSE: F)?
Model S Pricing
Tesla and Mr. Musk did not just decide to compete with the luxury car makers by having the three models of the Tesla S car at high price points north of $50K. Think about it. Most luxury car makers are in Germany, Italy and Japan. Every Tesla sold reduces the trade deficit and the country's carbon footprint. That makes Uncle Sam happy. When Exxon, GM and Ford try to legislatively damage Tesla, will they gain traction in Congress? It won't be easy.
How expensive are those batteries? Some estimate near 50% of the car's cost! Remember all those Rocket Scientists that work for Mr. Musk? Maybe Mr. Musk says: hey guys, design me a cheaper and better battery so I can cut the cost of the car and boost profits, market share and pay you all a better bonus. The contract for batteries with Panasonic is only 80,000 units. The SpaceX engineers and the Tesla Engineers probably collaborate on battery research work... a lot. Far fetched? Let me put it this way. Would we also like to have lightweight high efficiency, low cost batteries in space? Who would make them? I am not sure. I think who designs them is more important at this stage.
He hired Apple's former retail store head, for god's sake :-) Tesla has 2, count them, 2 products. Sound familiar? (Apple has just a handful too). Mr. Musk selected Palo Alto as corporate headquarters. That's not a random decision.
I think Tesla is a good investment because the story above looks like the designs of a man who wants to win the war before he fights. Someday all cars will be electric. Thats an easy call. The secular trends in EV's, politics, environment, cost, quality and trade favor Tesla and EV's. In five years we will know much more than today. But we all know this...gas prices will rise and that means Tesla and EV's are in the path of progress.
My Family and I own a few shares of Tesla. We have no interests, long or short in any other company mentioned in the article. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!