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Thread: Truth Or Myth: Most People Still Don't Get Tesla

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    Truth Or Myth: Most People Still Don't Get Tesla

    [top]Truth Or Myth: Most People Still Don't Get Tesla

    about:TSLA includes:AMZN

    Ever since electric-car pioneer Tesla Motors (TSLA) emerged with a victorious Q1, reporting its first profitable quarter on May 8, Tesla longs and shorts have fiercely debated notions ranging from the Model S to the TSLA stock. As most people do not have the luxury of experiencing the Model S or spending the time needed for deep analysis, they are easy victims of the popular myths about Tesla. In this article I explore some of the most common truths and myths about Tesla and render the verdict.


    I encourage you to participate in the debate, and even overthrow my verdict. Your feedback will be my inspiration for a possible sequel to this article.



    Truth or Myth #1: A Tesla is a gorgeous, high-tech, sexy, rich person's toy purchased mainly to impress one's friends.
    Granted, with a $70K base price, the Model S is out of reach for most. However, that doesn't mean the average Joe can't get it. To that point, I am a living example. I am scheduled to pick up my Model S on June 12th at the Fremont factory, and enjoy a long-awaited factory tour as well. I am excited to see the fascinating robot arms assemble the model S. If you are less fortunate, you can watch this video tour from National Geographic.


    What's my current vehicle? A mere $25K Honda CR-V. What drew me to Tesla in the first place? One of my work colleagues, a typical Silicon valley IT worker was buying a Model S 6 months ago! I am not a car person by any means, nor am I a tree huger. I would be hesitant to spend even $50K on something like a BMW or other luxury car. But I feel great spending $92K on my Tesla, which leads to the next point.


    Verdict: Myth

    Disclosure: I have made some investment in TSLA which helps justify my purchase of a Model S. However, I made my $5K deposit long before that.



    Truth or Myth #2: Spending $50K+ on a BMW, Audi, Mercedes, Lexus and Jaguar makes you look foolish, or worse, irresponsible.
    Most people, investment analysts included, tend to evaluate whether an electric or plug-in vehicle is viable by the predicted number of years it takes to recoup the premium cost one pays for such a vehicle. This logic works perfectly well for the likes of Toyota Prius, Nissan Leaf and Chevy Volt, all of which suffer noticeable performance compromises. But not only is the Tesla Model S is a "no-compromise", kid-friendly family car, it raises the performance metric to a level that competes with the world's best sport sedans costing more than $200K. Case in point: the Aston Martin Rapide S, one of the best sporty sedans on the market, carries a price tag of $202K. The Model S beats it in every category:
    Tesla Model S vs. Rapide S (Thank you Randy Carslon for the nice comparison)


    Tesla Model S
    (click to enlarge)
    Aston Martin Rapide S
    (click to enlarge)




    Name:  table.jpg
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    Go ahead and get excited driving home your brand new BMW, Audi, Mercedes, Lexus or Jaguar, but be ready to answer the inevitable question from your family and friends: Why?. Only the following replies could be considered legitimate:

    · I have to have AWD, or I can't live without a convertible, or I need a SUV.
    · I can't wait 4-6 weeks. But I can spend the whole day haggling with the dealers to get my price.
    · I have range anxiety. Go to point #4.


    Should you offer any other reason, you simply look foolish, maybe downright irresponsible, not just towards the environment, but in terms of your own hard-earned money.


    Verdict: Truth

    P.S., if you are not convinced, listen to the market and read Tesla Model S is now the best-selling luxury car and Tesla Model S outsells Volt, Leaf.

    If you are still not convinced, continue to the next point.



    Truth or Myth #3: The true cost of the Model S is lower than that of a $50K BMW, Audi, Mercedes, Lexus or Jaguar.
    A lot of math has been done to derive the true cost of the Model S. I will not go as far as others have and declare that the $70K Model S only costs a mere $15,625 after factoring all the rebates and savings. I would, however, confidently state that the true cost of the Model S is indeed lower than $50,000 after these savings:
    · Federal tax rebate of $7,500
    · Gasoline cost savings of $10,000 over 5 years
    · Service and maintenance cost savings of $2,500 over 5 years

    I intentionally leave out the assumptions about how the cost savings are calculated. But no matter how you slice it, you will save more than what I list. I also omitted the following savings that apply for most owners:

    · State tax rebate of $2,500 or more
    · No sales tax in certain states
    · HOV lane privileges
    · A quiet ride and no more smell of fumes

    Even these do not do the Tesla full justice. Most owners call "Priceless" the improvement in the quality of life that comes with owning the Model S. All owners I know are simply happier and enjoy life more.

    Personally, I value the HOV lane privileges more than anything. Saving 10 minutes out of my 30 minutes commute means I can live longer effectively, not to mention I would actually enjoy the whole commute.

    Verdict: Truth



    Truth or Myth #4: Range anxiety

    Enough already, about range anxiety, the most mysterious Model S misconception. While with other EV cars ranging in the neighborhood of 100 miles, it's a valid concern, the Model S has a range of more than twice that, more than enough for 98% of daily commuters. With the dramatic expansion of the Supercharger network, Tesla Model S drivers can now travel long distances within North America, for free, forever.

    Either you get it, or you don't. Once you get in a Model S, range anxiety is a thing of past, one that only small EVs like the Nissan Leaf need to worry about.


    Verdict: Myth



    Truth or Myth #5: The EV is unproven technology; the battery will degrade significantly after a maximum of 1,000 charges.
    I can't debate whether Tesla's car is proven or not; neither the Roadster nor the Model S has been on the road for more than 5 years. However one die-hard Roadster owner has abused the car to an outrageous degree:

    "A well-known Roadster driver, Hansjörg von Gemmingen, has driven his Roadster for more than 160,000 miles in 4 years and is at a battery depreciation rate of 70%."



    The Model S, with a larger, 85kwH battery, is covered for eight years and unlimited miles. So go ahead and drive as crazily as you can, abusing the battery as much as possible. As long as you don't take a blowtorch to it, blow it up or set it on fire, Tesla's no-fault battery warranty covers it all.


    Verdict: Half myth, and the jury is out for the other half.



    Truth or Myth #6: Tesla makes expensive electric vehicles affordable only to the wealthiest 1%, while EVs account for less than 1% of car sales. The $11 billion market cap is a bubble.


    The Tesla Model S is the Motor Trend Car of the Year, and according to Consumer Reports, the best car since 2007, not because it is an electric vehicle, but because it is simply the best car. Yet its electric DNA gives the Model S its rigid body structure and remarkable low center of gravity, which contribute to the car's structural stability and exhilarating performance. The Model S has strong appeal for anyone who desires the best car, though it is limited by its price tag. However, as Tesla founder Elon Musk put it in the secret master plan, Tesla is marching on to build an even more affordable car, on the following plan:

    1. Build a sports car.
    2. Use the money earned to build an affordable car.
    3. Use that money earned to build an even more affordable car.
    The plan for step 3 is a $40,000, 200-mile electric car due by 2017. Since up to this point Tesla has brilliantly executed according to plan, there is no reason to doubt they won't complete step 3.

    Let's move on to market cap. It is gross ignorance for anyone to compare Tesla's P/E values with those of Ford or GM and declare TSLA overvalued. Make no mistake. Tesla is a technology company, not a traditional automaker. Even more, Tesla is not just a technology company; it is the culmination of the most powerful business model that exists: one that appeals to the broad market while enjoying tremendous technological and business model competitive advantage. It has an whole ecosystem supporting it with Tesla seated at the top of the pyramid. I cannot think of any business as brilliant, save Amazon (AMZN), and yet I think TSLA deserves a larger valuation multiple than AMZN, considering the future potential and the extend of disruption. As of June 3, 2013, Tesla is trading at $92.6 with a valuation of $10.6 billion. That gives a forward earnings multiple of 89, comparable to Amazon's forward earnings multiple of 83.


    Verdict: Myth



    Truth or Myth #7: Tesla's 21,000 car sales target for this year is doubtful. The 25% gross margin is untenable without ZEV credit revenue.
    Not only will Tesla sell 21,000 cars this year, it will significantly beat this number. The 21,000 cars is just a number Elon tossed out to tease, a slight improvement over the previous estimate of 20,000. It is an open secret that the Model S is much more attractive in Europe than in the US because the price of gasoline is at least twice as high there. Rising European sales and strong demand in the US will push the sales this year to the 25,000 range.

    As to the prediction of 25% gross margin by year-end, a number of articles by the Tesla bears have developed a theory on why Tesla is not profitable without the ZEV credit. Elon has repeatedly stated Tesla will reach 25% gross margins with zero dollars of ZEV credit revenue by year-end. If you choose to doubt him, then you haven't learned the lesson of the recent short squeeze.


    Verdict: Myth



    Truth or Myth #8: The big automakers, Toyota, GM and Ford, will launch their own EV products and crush Tesla. Tesla has no intellectual property or competitive advantage that will enable it to stay ahead.

    No one has dissected this myth more eloquently than Julian Cox. I recommend you read the most brilliant, powerful and in-depth analysis of Tesla's competitive advantage.


    Verdict: Myth


    Truth or Myth #9: Tesla is the next Apple (AAPL); Elon Musk is the next Steve Jobs.
    I will simply render the verdict here and let the readers debate it.

    Verdict: Truth

    Actually I want to offer an even stronger argument. I intentionally left out the reasons behind the argument because I want to hear from you.

    Tesla is more than Apple.
    Tesla is Apple on the outside, but it's Google (GOOG) at its core; Elon Musk is more than Steve Jobs, because he wants to take mankind to Mars. (I hope you are not laughing.)


    Truth or Myth #10:
    Forget about Great America; just take your kids for a Tesla drive.
    I once sat in Model S of my good friend David. David is an amateur race car driver who drives the Model S with a mania, fully demonstrating the rocket launching and racing capability of the Model S. For me, it is more satisfying than riding the roller coaster in Great America, because the instant accelerations and stunning turns are accomplished in silence, giving the feeling that you're riding a spaceship rather than a man-made vehicle. Kids seem to agree, they just love Tesla. Even Kindergarteners are having fun with Tesla!

    Verdict: Truth


    Truth or Myth #11:
    Gallons of light
    Here is an unofficial video commercial for Model S by a Tesla fan. It goes beyond the mundane notion of gasoline cost savings and finds in the Model S new heights of nobility. I was impressed by the professional quality achieved by an ordinary fan - without any backing from Tesla - and the sublime ideology behind it.
    On this one I'll let you call the verdict once you watch it and check out its background.





    Summary
    While some of the evidence could be considered anecdotal, it is my intention to offer a fresh account of Tesla that repudiates the myths and clichés. There are also a few irrationally exuberant or audacious arguments. I did this intentionally, to provoke your curious mind. The commonly-perceived wisdom is "Yeah, the car is good, but the stock is ahead of itself. Wait till Tesla comes out with an affordable model; only then will the stock interest me". By then it will be too late, my friends. When the $40,000, 200-mile electric car hits the street in 2017, are you naïve enough to think that the stock will still be at 2 digits?


    As of June 3, 2013, TSLA is trading in the $92-$96 range with a market cap of $11 billion. In contrast to most people, I assert that this is a fully justifiable valuation, and perhaps offers one of the very few remaining windows of opportunity to go long on TSLA.


    The prevailing theory is that when any stock rises more than 200% in a month, it is due for significant pull back. However, it is in this magnificent May that Tesla solved its two most apocalyptic and thorny issues: one for the company and one for the car, and that completely changes Tesla's valuation.


    The company's apocalyptic issue is its financial outlook. Not only Tesla is now profitable, it has successfully raised more than $1 billion dollars. With more than $760 million left after paying off the DOE loan, Tesla has a lot more capital in its coffers. TSLA has been suppressed over the years due to the profitability issue and the stigma of the DOE loan. It is only reasonable to conclude that the suppression effect will rebound now that the situation has completed a 180° turnaround, one whose impact the market has not fully digested.


    The thorny issue around the Model S is the charging infrastructure. But now the dramatically expanded of Supercharger network, which I correctly predicted, Tesla effectively removes the only Model S drawback.


    If I have got you thinking of going long with TSLA, even to the slightest extent, this article has succeeded. In subsequent pieces, I will offer a number of trading techniques that let you go long with reduced risk. Until then I hope the windows remain open for anyone brave enough to jump in.

    Another closing thought. I just walked out of the Tesla's 2013 annual shareholder meeting in Mountain View, California with some satisfying and astonishing answers to my questions. And Elon Musk iced the cake by saying:
    (click to enlarge)

    Now that is the company you want your money to invest in.


    Disclosure:
    I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    - - - Updated - - -

    This article was intent to be published on SeekingAlpha. However the review process has caused some delay so I decided to publish here. I want to hear your debates, though there may not be as many naysayers showing up here as I'd like to see.

    I took out "Aston Martin or Maserati" from the line up of luxury brands in #2.

    Pick up date moved up to June 12th, to my pleasant surprise.
    Last edited by kevin99; 2013-06-11 at 11:06 AM.

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    Senior Member Norse's Avatar
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    wow, great article, and great Commercial!

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    The whole thing about comparing Musk to Jobs is annoying. Elon Musk and Steve Jobs are very different people. Different personalities, different styles. Jobs was a showman who cared a great deal about his presentations being flawless, perfect, entertaining. Musk shows up in t-shirts and stumbles through presentations, loses his train of thought, appears to be unrehearsed. But... he's authentic. The observer can't deny his authenticity. With Jobs, every word was carefully chosen, scripted. With Musk, every word comes across as a spur-of-the-moment should-I-tell-them-or-not, oh-what-the-heck-I'll-tell them kind of thing. Or, it's an act that's even more rehearsed than Jobs but I personally don't believe that. I think Musk is authentic. And he's refreshingly *not* Jobs.

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    My honest opinion: This reads like fanboy lip service, and if I was unfamiliar with Tesla and looking for unbiased information on the subject I would dismiss this after the first few points.

    More specifically:
    Truth or Myth #1: A Tesla is a gorgeous, high-tech, sexy, rich person's toy purchased mainly to impress one's friends.
    The average Joe cannot afford a $70k car. Ironically, your second point applies here: spending 1.5x your annual household income on a car is irresponsible if you're an average Joe. (little or no saving or investments)

    Truth or Myth #2: Spending $50K+ on a BMW, Audi, Mercedes, Lexus, Jaguar, Aston Martin or Maserati makes you look foolish, or worse, irresponsible.
    ...
    Should you offer any other reason, you simply look foolish, maybe downright irresponsible, not just towards the environment, but in terms of your own hard-earned money.

    You lost me here. Statements like this alienate your readers. The price of a car has nothing to do with environmental responsibility, and there are luxury cars that get decent MPG. (Lexus GS 450h for example). As for hard earned money... If someone is making $200k/yr and has plenty of investments, how would $50k be irresponsible?

    Not worth reading further, regardless of the validity of future points. But I did read the whole thing; FYI Range Anxiety is not a myth.

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    Nicely done.

    Regarding Myth #7, Tesla needing ZEV credits to maintain profitability... does anybody have any more insight on this? I've had a discussion with a friend, and he agrees with the pundits that state this is the one significant red flag with Tesla's viability.

    Other than Elon's predictions, any concrete evidence that suggests that Tesla can/will get by without the credits now/soon?

    Thanks.

    -sc
    -sc

    85KWh | Metallic Blue | Black Leather | Obeche Gloss | Tech | Pano | Air | 19" Rims | Parcel Shelf | Twin Juicers | HPWC | VIN: xxxx10647


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    Quote Originally Posted by scriptacus View Post

    Truth or Myth #2: Spending $50K+ on a BMW, Audi, Mercedes, Lexus, Jaguar, Aston Martin or Maserati makes you look foolish, or worse, irresponsible.
    ...
    Should you offer any other reason, you simply look foolish, maybe downright irresponsible, not just towards the environment, but in terms of your own hard-earned money.

    You lost me here. Statements like this alienate your readers. The price of a car has nothing to do with environmental responsibility, and there are luxury cars that get decent MPG. (Lexus GS 450h for example). As for hard earned money... If someone is making $200k/yr and has plenty of investments, how would $50k be irresponsible?

    Not worth reading further, regardless of the validity of future points. But I did read the whole thing; FYI Range Anxiety is not a myth.
    I wish you read more closely. The point is if you are buying a new luxury car for $50K+, you should really look at Tesla Model S first, unless you have the reasons I listed there in the arguments. It has nothing to do whether you make $200k or not, the premise is you decided to spend $50K+ on a new luxury car.

    It is a strong argument I made, and I did it intentionally to wake up some conventional thinking. When I see all the BMWs, Mercedes parking on the street, I am wondering how they will fare In 3 years, when the used car market start open up for the Model S?

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    Kevin,

    I live blogged the annual meeting on teslamotors.com forums and had to go back and write "GOOD QUESTIONS" on top of your entry.

    I'm VERY glad you asked him abou the June 20 announcement.

    The questions regarding incentives for owners was also key. He said "interesting" to your suggestion for a year of service, so maybe. Maybe a year of 4G for each sale, when it launches?

    Also, his offhanded comments regarding how he had fought for supercap/li-ion hybrid systems was "interesting".

    ------

    Truth or Myth is a great concept and well executed. I have a few thoughts/suggestions:

    1. Tesla is the Next APPL/Elon is next Steve Jobs

    I think this is an unwarranted and the weakest part of your entire presentment. I think the arguments as to VALUE and FIRST TO MARKET and SIZE OF MARKET SERVED are all valid comparisons, but just a blanket statement weakens the rest of the (very good) arguments.

    Also, Elon Musk may be one of the smartest engineers I've ever encountered. Is that skill set comparable to Jobs? I think Elon's accomplishments, even today, far exceed anything Jobs did.

    Elon says he doesn't believe in "brand" other than as represented by quality, but check out this article on Elon and TM's marketing.

    The Best Marketer in Silicon Valley Is Doing Everything You're Not Supposed to Do

    2. "The prevailing theory is that when any stock rises more than 200% in a month, it is due for significant pull back. However, it is in this magnificent May that Tesla solved its two most apocalyptic and thorny issues: one for the company and one for the car, and that completely changes Tesla's valuation.?

    The stock HAS pulled back significantly from $114. But the argument is that fundamentally the shares are not valued for the probability of great success (even in the next 12 months).

    That's the argument (with numbers) I think we should see. Show the next 2 years with 50-100% growth from EU and World. Just my back of the envelope calculations show that a $20B valuation (@20 x gross margins) is within reach within 12 months.

    3. Truth or Myth #5: The EV is unproven technology; the battery will degrade significantly after a maximum of 1,000 charges.

    One blog post isn't enough, especially as the batteries for the Model S are a custom chemistry designed by Tesla to maximize performance and charging. There are several citations to this that might be even more helpful in making that point.

    4. Truth or Myth #10 & #11 aren't really posed as a question to be answered that way.

    #10 could go "Kids love to ride around in a Tesla?"

    #11 could go "Tesla customers go above and beyond any other customer loyalty?"

    Examples of commercials made, cars sold, EVangelism etc.

    Take these as constructive criticism with the understanding that I'm glad you were there to ask Elon the important questions, and to help people that invest in Tesla understand why they are succeeding and will likely continue.
    Last edited by callmesam; 2013-06-06 at 11:01 AM.

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    Quote Originally Posted by callmesam View Post
    Kevin,

    ...
    Take these as constructive criticism with the understanding that I'm glad you were there to ask Elon the important questions, and to help people that invest in Tesla understand why they are succeeding and will likely continue.
    Definitely, thanks for the suggestions. I am glad to contribute to the investment community. I am fortunate to get on board with this fascinating company. It is truly an epic and magnificent May for TSLA. My investment decision is not based on a fanboy mentality, as I never was a Apple fan until it becomes mainstream. I try to keep my head cool.

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    Great article. That commercial is really well done. "Gallons of Light" is a really great tag-line. Need to get this on reddit.com and buzzfeed.

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    Quote Originally Posted by scaesare View Post
    Nicely done.

    Regarding Myth #7, Tesla needing ZEV credits to maintain profitability... does anybody have any more insight on this? I've had a discussion with a friend, and he agrees with the pundits that state this is the one significant red flag with Tesla's viability.

    Other than Elon's predictions, any concrete evidence that suggests that Tesla can/will get by without the credits now/soon?

    Thanks.

    -sc
    Here's the thing. Tesla was never supposed to reach profitability in early 2013. A growing business needs to grow. Tesla needs to pay for all the infrastructure they have built and work toward profitability. Tesla still needs to fine tune their scaling, manufacturing, and vendor process. The ZEV credits came in over and above all that which allowed Tesla to reach profitability earlier than expected. That's why Elon is going back to the original timeline of profitability...late 2013. He knows that by the end of the year that Tesla will have all of that smoothed out with the profits there. Elon is a man that doesn't hold back the truth when he is aware of it.

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