Doug Cheeseman of Saratoga tapped into his retirement savings to buy 700 shares of Tesla Motors early on, when it was $17 a share. On Friday, Tesla's stock closed at $35.32, just shy of Wednesday's all-time high close of $35.47.
"I wish I had more shares," said Cheeseman, a biologist who travels the world leading wildlife safaris and who drives a blue Tesla Roadster when he is home. "At the time I bought the 700 shares I thought 'This is risky.' Now I think that in two to three years it will be near $100 a share."
Cheeseman is not the only one bullish about the Palo Alto-based electric-car company that began publicly trading shares June 29. Although Tesla has yet to turn a profit, several recent announcements have boosted investor confidence.
Tesla is working at breakneck speed to meet internal deadlines for the Model S luxury sedan, production of which is to begin in mid-2012. But much of the company's intellectual property and competitive firepower lies with its battery and powertrain technology, which partly explains why Panasonic, the world's leading maker of lithium-ion batteries, bought a $30 million stake in Tesla earlier this month.
Another company that has partnered with Tesla is Toyota. At the 2010 Los Angeles Auto Show, which runs through Sunday, Toyota showed off the electric version of the new RAV4, which will be "powered by Tesla" and released in 2012.
The basic vehicle will be built at Toyota's plant in Ontario, Canada, but Tesla will build and supply the battery and other related parts at its Palo Alto headquarters. Toyota has yet to announce where the final assembly will be, but many -- including Tesla CEO Elon Musk -- are rooting for it to take place at Tesla's Fremont factory, housed in the former NUMMI plant.
But despite those promising developments, some analysts think Tesla's stock, which trades on Nasdaq under the symbol TSLA, is overvalued.
NOTE: For a look of the Roadster "under-the-skin" click HERE
"I think the market is overreacting to the news about the RAV4 collaboration, which probably won't do much to increase Tesla's short-term profitability," said John Gartner, a senior analyst with Pike Research's clean transportation practice. "I wouldn't be surprised if the stock recedes a bit over time as investors realize that profits are still far off in the future."
Others are banking on the fact that the Model S appears to be on track.
Himanshu Patel and Vivek Aalok, analysts with J.P. Morgan, published a 38-page report this summer that predicted Tesla's revenue would rise from $100 million in 2010 to $1.8 billion by 2013. The report said Tesla's small size and roots in Silicon Valley, along with its focus on all-electric vehicles, give it an advantage over other automakers.
Consumer interest in the Model S, which will list for about $56,000 but qualify for a $7,500 federal tax credit, appears to be high. More than 3,000 people have paid $5,000 to reserve the Model S to date, and foot traffic at Tesla showrooms -- including a recently opened store in Tokyo, the first in Asia -- is high. Today, a red Model S prototype will be on display at Tesla's Menlo Park showroom.
Cheeseman, who has reserved a Model S, is planning to head up to Menlo Park to check it out. And he's not planning to unload his stock anytime soon.
"I still have the 700 shares and do not plan to sell," Cheeseman said. "My son bought 100 shares at $19 and sold at $25 -- I told him he was crazy to do so."
COMMENTARY: I agree with the assessment that Tesla (NASDAQ:TSLA) stock is overvalued. Tesla is yet to feel the full brunt of the competition from the major Detroit automakers and the big four Asian automakers when all of them introduce their electric cars. I really don't see electric cars taking off for the following reasons:
- Battery Miles Per Charge - Typical lithium ion batteries deliver between 80 to 100 miles per charge, so electric cars are going to be restricted to owners living in large cities who drive to the grocery store or shopping mall. Tesla claims that its Li batteries can deliver 245 miles and 300 miles per charge for the Roadster and Model S sedan respectively. However, these numbers are for highway driving conditions, and mileage will drop dramatically for vehicles driven within inner cities, where vehicles make frequent stops. Unless there is a major breakthrough in electric battery technology, electric cars are impractical for highway distance driving. You would have to stop at least four times to get from San Francisco to L.A. The Tesla Model S might do it on one charge, but this leaves very little room for mistakes.
- Lack of EV Charging Stations - There is currently no widely dispersed network of electric charging stations. As expected, the majority of electric charging stations are located in the large cities. A huge investment in EV battery charging infrastructure will be needed before consumers feel comfortable owning an EV.
- Battery Life Span - Tesla claims its Li batteries can last 7 years or 100,000 miles before they need to be replaced. According to Tesla, after only five years of use, their Li battery packs for their Roadster will only retain 70% of their charging capacity, and it drops from there. This means owners will have to charge their batteries more often, adding to the drop off in charging capacity and a drop in mileage between charges.
- Battery Charging Times - According to Tesla, it takes 3.5 hours to fully charge their Li batteries. You will have to plan ahead and take into account these charging times, particularly for long distance driving.
- Battery Replacement Costs - In 2009, Tesla claimed that it would cost $36,000 to replace their Li battery pack. However, the replacement cost can be greatly reduced if you opt to pay $12,000 up front at the time you purchase your vehicle. The reasoning for the lower price, as opposed to waiting ten years to replace the Li batteries, is calculated on the present value of the $36,000 and anticipated improvements in EV battery technology that will reduce their cost. The battery replacement-to-vehicle acquisition cost ratio for the Model S sedan, at current prices, is roughly 0.60 to 1 if you opt to replace the batteries after seven years, but drops to 0.24 to 1 if you opt to pay up front for a new replacement battery pack. This is outrageous. Battery replacement costs will have to come down dramatically.
- Unusual Battery Pack Technology - Tesla Motors refers to the Roadster's battery pack as the Energy Storage System or ESS. The ESS contains 6,831 lithium ion cells arranged into 11 "sheets" connected in series; each sheet contains 9 "bricks" connected in series; each "brick" contains 69 cells connected in parallel (11S 9S 69P). The cells are 18 mm (0.71 in) in diameter and 65 mm (2.6 in) long (18650 form-factor); this type of lithium-ion cell is also found in most laptop computer batteries. The pack is designed to prevent catastrophic cell failures from propagating to adjacent cells, even when the cooling system is off. Coolant is pumped continuously through the ESS both when the car is running and when the car is turned off if the pack retains more than a 90% charge. The coolant pump draws 146 watts. It is difficult for me to envision that their stock price is due to Tesla's Li battery technology alone.
- Price of Gas - Gas prices will have to increase to at least $5.00 per gallon to create real traction in EV car sales. A small producer like Tesla Motors is not going to have much of a chance against the larger automakers because of their small size and limited resources, namely capital and production capacity.
I am very impressed with the performance of the Roadster on the street and on the race track (See my previous posts). The Roadster can go 0-60 mph in 3.7 to 3.9 seconds depending on the model and has a top speed of 125 miles per hour. That beats a lot of street muscle cars and exotic sports cars on short distances, but I don't expect owners to drive their Roadster at those breakneck speeds without dramatically affecting battery performance and life spans.
In a previous blog post, I calculated that Tesla would have to produce about 15,000 Roadsters per year just to break-even, so given current sales volumes, investors can expect the company to generate significant operating losses for at least the next three years.
The Model S sedan does not go into production for at least another two years, and the Chevy Volt and Nissan Leaf will both capture significant market share and generate first mover advantages in the sedan segment, long before Tesla gets their Model S sedan into the marketplace.
Tesla reported revenues of $31.9 million and a net loss of $34.9 million in the quarter ending September 30, 2010 (post-IPO). Through September 30, 2010, Tesla has lost $103 million on gross revenues of $50 million, and accumulated losses of $300 million since inception. Tesla Motors stock ended at $23.89 when it went public at the end of June 2010, but the stock price is currently (11/29/10) at $33.73--an increase of 41%. Not bad for a company with so much red ink. Even with the Toyota deal to provide Li battery packs for their electric RAV4, many analysts believe that Tesla stock is over-valued, and I am certainly one of them.
I scoff when I read that Tesla has projected revenues of $100 million for 2010 and $1.8 billion by 2013. Where are these numbers coming from? If I were a Tesla Motors stockholder, I would be very concerned if those projections can be attained. Another bad quarter, and Tesla Motors stock could tumble dramatically to more realistic price levels. I know one very experienced senior broker, and he has told me that they are "hedged" on the down side or sold their Tesla holdings. It should be obvious that there has been too much hype and a whole lot of speculation in Tesla stock. One hell of a way to make a living.
Courtesy of an article dated November 27, 2010 appearing in the Mercury News
Comments