Tesla stock has been on a rocketship this year, soaring to four times its trading value of a year ago, from $25 to $115 per share!
Recently a subscriber asked me if this super hot stock was now a short. My answer: "That's going to require an article. It's not a simple yes or no."
Over the Short Term
When you are at the top of a tsunami, you, and anyone else surfing beside you, might get crushed. So, with the markets so so high, almost everything is a short -- in the short term. Particularly if you think that the summer Frankenstorm is poised to pound investors over the next few months. (Read my article, "The Wall Street Tsunami," for additional information.)
Between now and mid-November, when the Tesla third-quarter earnings report will be released, there could be a lot of downward pressure on Tesla stock. The first-quarter GDP growth was just revised down to 1.8 percent, and the second quarter could be that or worse. In August, Tesla will probably release an earnings report that shows a quarterly loss and lower sales than the first quarter. That could inspire some speculators to hit the sell button.
Over the Long Term
I have a bias. I agree with Elon Musk that "electric cars are the future." However, that bias is supported by a lot of facts, a lot of avid fans, a CEO who is getting very media-savvy, technical achievements that trounce the competition and the highest ratings that the independent car reviewers have ever given.
The first thing you notice when you drive a Tesla is performance. The car is faster than any car on the road. The handling is race car worthy. The deck sports the best technology available. The seats are divine. And frankly, the car looks cooler than anything else on the road.
When Motor Trend named the Tesla S sedan the 2013 Car of the Year, the editors called the car "truly remarkable," saying:
"It drives like a sports car, eager and agile and instantly responsive. But it's also as smoothly effortless as a Rolls-Royce, can carry almost as much stuff as a Chevy Equinox, and is more efficient than a Toyota Prius. Oh, and it'll sashay up to the valet at a luxury hotel like a supermodel working a Paris catwalk."
Jake Fisher of Consumer Reports said, "This car tested better than any car we've ever tested before... better than any of the car companies, even those that have been around for a hundred years."
Based upon the product itself, over the long term, Tesla Motors could be the real deal -- the next great thing in transportation. Given the monumental challenges of starting a car company, Tesla has had, simply, eye-popping success. Achieving a billion in sales with a game-changing product in a hundred billion dollar industry that has been entrenched for over a century isn't easy. The team at Tesla has been working very hard and very smart.
Rock-Solid Executive Team
Tesla's executives are top in their field. In addition to being the CEO and product architect at Tesla Motors, Elon Musk is the CEO/CTO of Space Exploration Technologies (SpaceX), the first commercial company to dock with the International Space Station, and the chairman and principal shareholder of SolarCity, the leading provider of solar systems in the United States. JB Straubel, the chief technical officer, has a long and illustrious history of inventing superior electric propulsion products. Retail guru George Blankenship is a high-profile C-level from Apple, who was the chief strategist behind the wildly popular Apple retail stores. Gilbert Passin, the vice president of manufacturing, came from a senior position at Toyota. Chief information officer Jay Vijayan hails from VMWare. Deepak Ahuja, the CFO, came from Ford.
But Where Can You Fuel Up?
Tesla has a big plan to make it as easy to drive an EV across the country as it is with a gas guzzler. They are installing Super Charging stations across the U.S., where Tesla owners can choose "free or fast." If time is a concern, they can choose to swap out batteries. If they are willing to spend 20 to 25 minutes for a charge, the "fueling" is free.
The charging stations should pepper 80 percent of North America -- this year. In fact, Tesla Motors CEO Elon Musk is so confident in his game plan that he is already planning a coast-to-coast road trip with his kids in late 2013. According to Elon, who spoke during Tesla's 2013 Shareholder Meeting, "By the end of this year, you'll be able to travel from LA to NYC just using the Supercharger network. I'm planning to do a road trip with my kids at the end of the year, which should be an adventure. Kind of like the Chevy Chase movies."
Expensive!
The Tesla S sedan is pricey, as will be the Tesla X SUV. The Consumer Reports S sedan costs $89,650, and you can spend even more by purchasing additional battery life and other upgrades. This puts Tesla cars out of reach for most Americans. And Tesla is not rolling out a more affordable version until 2016.
Yet, even with a hefty price tag, Tesla was the top selling electric vehicle in the first quarter of 2013 (source: Tesla). And with plans to deliver cars in Europe by the third quarter of 2013 and Asia by the fourth quarter, the world's elite could be leading the worldwide shift from combustion to electric automobiles -- and driving down the future price in the bargain.
2013 Outlook (according to the 1st quarter earnings press release and the 2013 Shareholder's Meeting)
>21,000 Model S Deliveries
25% Q4 '13 gross margin
50 Stores
75 Service Centers
80% of North America will have Supercharging Stations
The current cash on hand rings in at $760 million, which Elon says is plenty of room to achieve the growth in Superchargers, service centers and stores. If Tesla achieves 21,000 in sales at an average $89,650 a pop, sales this year could swell to $1.9 billion, more than four times the sales of 2012, at $412 million. With 25 percent margins, the cash on hand should remain stable and might even increase. If Tesla hits its projected margins, then it will have the best profit margins of any car company in the United States -- by a hefty margin.
Selling Directly to the Customer
There is one big legal challenge going on -- a war with car dealers. Tesla is a game-changer from a carbon-emissions perspective, but it is also a renegade in its sales approach. Tesla sells directly to the customer. George Blankenship came to Tesla with a vision to forego the dealership model "in favor of stylish, consumer-focused showrooms."
While the customer pays a lot less by going direct, some dealers have declared war on Tesla. Lobbyists tried, and failed, to pass a bill on June 21, 2013 in New York to ban Tesla from doing business in that state, according to Elon Musk's tweet. This is another win for Tesla, in a long line of victories, but it's unlikely that the legal challenge is over.
So far, Tesla Motors, led by the very impressive serial entrepreneur Elon Musk, has conquered all challenges and emerged not only unscathed, but as the king of the car industry. That's definitely not a short, in my view.
Over the next few years, only rich trendsetters will be able to afford these gorgeous cars. By 2016, we may all want one! Having said that, Never Pay Retail is a good strategy for all kinds of purchases, whether it is stock or a car...