EV Car Maker Has Huge Opportunity

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

I recently visited the Tesla (NASDAQ: TSLA) store in the Washington Square Mall in Portland. The experience was unlike any other sales show room I have entered as there’s little chance of going out for a test drive, and the entire showroom consisted of two cars (the Roadster and the Model S).

Let’s take a look at Tesla’s strengths, weaknesses, opportunities, and threats. Otherwise known to us Fools as a SWOT.

Strengths

  • Design: The Tesla Model S is the most beautiful car I have ever seen. Many others agree with me, indicative at least in part by the backlog of orders.
  • The new Model S sedan won Motortrend “Car of the Year” award.
  • According to Motortrend, at an estimated “74.5 mpg, the Model S costs about 6 cents a mile to run, based on California's 13 cents per kW-hr.” 74.5 mpg, as estimated by Motorend! (that’s the equivalent amount of energy being produced by gas)
  • The US Government is in favor of new environmental technology and is in Tesla’s corner. The company received a large loan from the Department of Energy (414 million), and a $10 million grant from California to reimburse the company for equipment purchased to refit a plant in Fremont. Like it or not free-marketers, this bodes well for the company.
  • In reference to the above point, Telsa also has gained as President Obama was re-elected. Romney would have likely offered the company few to no favors. This is part of the reason the stock has risen so.
  • Model X (the upcoming Tesla SUV) already has 2,000 + reservations even though the car has not yet gone into production. The prototype and the Tesla name has won the backlog (refundable however if you change your mind).
  • Quoting the following Motley Fool column by Tamara Rutter, in regards to the recent price increase: “On the company's official website commenters responded by thanking Tesla for the "heads-up and transparency." This is how Tesla has handled every challenge it has faced thus far... with clear, straightforward reasoning and communication -- further proof that Tesla is not your average automaker.”  … We’ll call this an “excellence in communication” strength.
  • Toyota (NYSE: TM) purchasing battery packs and motors from Tesla.
  • Tesla buyers benefit from up to a $7,500 Federal tax credit.
  • Brand name: The Tesla name is for many already synonymous with innovation, beauty, and forging a path through unchartered territory.
  • The company has already started to fulfill orders. That means a real product exchanging hands for real money, and customer reviews have been very, very good.

Weaknesses

  • The economics and cash flow are tricky. Tesla burned through almost $200 million of its $280 million it had to start the year, leaving it with only $86 million as of Sept. 30. Obviously getting a new car company off the ground is capital intensive but Tesla has continued to come back for more financing.
  • The U.S. Department of Energy holds warrants to buy 3.1 million shares for $7.54. This floor is a long ways off the current stock price. Added dilution/ low floor anyone?
  • Bears point to the fact that General Motors (NYSE: GM) missed sales forecasts with the Chevy Volt and that this proves the market for EV’s is limited at best. However, the Volt is not nearly the same product Tesla is producing. That said, the Volt has received excellent satisfaction scores from its drivers.
  • Tesla has failed to reach its own production estimates on the Model S.

Opportunities

  • 9 month backlog based on current production for the Model S.  
  • Production of the Model X brings further economies of scale.
  • As range improves on EV’s, so does the number of buyers.
  • As oil prices go up, so will interest in electric cars. With increased costs associated with producing oil, the supporting price floor of which oil cannot fall below rises. Not to mention inflation.
  • Tesla Supercharging stations already active in California, will grow in number and frequency. With its relationship with Solar City, it hopes to have 100 charging stations by the year 2015, which will generate their power from solar. That means, you’ll be able to run your car purely on sun energy, (paraphrasing Elon Musk.) And you’ll be able to “fill up” so to speak for free. This combination is pretty exciting, I don’t care who you are.
  • Good amount of Tesla’s shares are still shorted. Stock may pop with a short squeeze.

Threats

  • The girl I spoke to at the Tesla dealership encouraged that if I was going to put my name on the waiting list to do so before Dec. 31 of this year, as the price to purchase will be increasing by $2,500 next year. The company has not raised prices in the 3 years it has been public, and the $2,500 covers inflation she said. They had expected to raise it $5,000, but settled on $2,500. The law of supply and demand states anytime you increase price, demand drops.  Of course, there are over 16,000 people who have reserved.
  • If Tesla runs out of money while trying to ramp up production, they will have to offer new shares to the public to raise money, thus diluting current shareholders, perhaps significantly.
  • One thing to note, online, Tesla has stated that when you leave a deposit for the Model S, your deposit is in no way guaranteed, or put into a special, protected account, nor will you be due any interest. It could be argued that Tesla is getting an interest free, unsecured loan from its customers. This has regulatory, and possibly some ethical concerns here.

Looking Forward

Tesla is a huge risk as an investment, with a not so small $4 billion market cap. Here you have the SWOT analysis, and shortly I’ll be writing a column on whether or not I believe Tesla would make a good investment. 


margiecfl has no positions in the stocks mentioned above. The Motley Fool owns shares of Tesla Motors. Motley Fool newsletter services recommend 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure