Top picks 2012: Tesla Motors

Silicon Valley-based maker of electric cars powers up for the mass market.

By TheStockAdvisors Jan 3, 2012 12:10PM
Image: Traffic (© Pixtal/SuperStock)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012

By Timothy Lutts, Cabot Stock of the Month

While Toyota has blanketed the U.S. with milquetoast hybrid Priuses, and the Chevy Volt and Nissan Leaf are uninspiring "appliances," Tesla Motors (TSLA) has done something different. It has built electric cars that are thrilling to drive. 

And from its headquarters in Silicon Valley, Tesla has been acting like a high-tech company. And why not, considering that co-founder and CEO Elon Musk made his fortune by selling PayPal to eBay for $1.5 billion?

Musk looms large in the story because he used much of his own money to bankroll the project, supplemented in time by money from private investors -- as well as $465 million from the U.S. Department of Energy. 

Last year's IPO was just the latest chapter of financing, and possibly the last. From the beginning, Tesla's goal has been to create and sell affordable mass-market vehicles that would reduce oil consumption. But the company hasn't yet targeted the mass market.

Its first step was to develop two-seat electric sports cars costing $109,000. It has sold more than 2,000 of these Roadsters (in 30 countries) and will stop after 2,500. The revenues from that effort are funding work on the company's next car, the Model S, a sedan that will sell for $57,400. Tesla has already taken reservations for more than 6,000, and will begin deliveries in mid-2012. It also expects to offer an SUV, the Model X, based on the same platform, with deliveries in 2014. 

Profits from the Model S and Model X will fund development of a mass-market car, priced around $30,000, which will compete with the likes of the Toyota Camry, Honda Accord and Ford Taurus.

This strategy mimics the way successful Silicon Valley companies launch products; hit the rich early adopters first, then drive costs down to serve the mass market. Furthermore, Tesla has boosted its cash flow by inking major deals with Daimler and Toyota for its proprietary powertrain systems . . . which tells me these components are the best. 

Not only does Tesla have revolutionary technology, unlike most car companies it also has little debt and a young, bright work force, and no retirees with costly pensions. The company's revenues were $15 million in 2008, $112 million in 2009 and $117 million in 2010. Revenues could hit $550 million in 2012, as the Model S hits the streets. 

And Musk foresees a profit in 2013. TSLA went public in June 2010 at $17, peaked at $36 in November 2010. It has retreated somewhat since then, restrained in part by the weak broad market and by reports of fires in the batteries of (intentionally) crashed Chevy Volts. 

But that's short-term, and I see a buying opportunity. Long-term, I rate Tesla as one of the stars of the present-day automotive revolution and a high-potential long-term investment.

Steven Halpern's offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.

Tags: TSLA
Jan 3, 2012 2:01PM
Is a 300 mile range not long enough? It certainly can't be counted your typical daily commute. There are not many people who travel longer than that in one go. Besides, can you believe that journey would only cost you $4? Welcome to the Tesla Model S. Batteries are becoming better and better anyway. Just give Tesla a few years! :) 
Jan 3, 2012 5:01PM
A lot of people without electric cars are skeptical--how can driving electric be better when it takes them so long to recharge?  Won't you be stuck waiting for a charge?  They'll never take over from gas cars!

Fortunately, nobody is suggesting that we all throw out all of our gas cars and drive battery-only vehicles.   (Even if somebody wanted to suggest that, it wouldn't work because there are too few available).  Instead, just think about electrifying SOME of your driving the next time you buy a car.

If you are a one-car family, buy a PHEV.  If you are a multi-car family (the vast majority in the US), replace ONE of the cars with a BEV.  Viola--in both cases you can now do most of your driving on electric, but you still have gas propulsion available, so you can still go anywhere you want to and you never have to wait for a charge.  You make no sacrifices, yet you gain much.

My wife and I have been doing this for years.  We still have our old Prius around if we really need it...but dang we hate when it comes to that.  Driving our BEVs is so much nicer!  Quieter, smoother, a much more responsive throttle, astounding traction control, cheaper, more convenient fueling at home...what's not to like?  In every family I have met or heard of with an EV, the EV is the primary car, and they only take the secondary gas car when necessary.

Jan 3, 2012 3:37PM
What do you think happens when a car filled with natural gas gets into an accident?
Jan 4, 2012 9:16AM
It's better to simply buy the Tesla stock and  become rich. That way people can whine about how far an electric car can travel while they drink champagne that was paid for by electric cars.

Electric is the future. But, only if a 'future' is wanted. You either jump on the bandwagon or don't. Those on the bandwagon will still be in the faster car. What American made car can compete with a Tesla Roadster on any race track? Hint: none

Jan 3, 2012 9:04PM
EV has something similar to PC's moore law.  That is the battery, with each advance step the advances of car using battery will accelerate the advantage of EV over conventional gas. 
Jan 4, 2012 1:55AM
The Model S has a range of 160 to 300 miles, depending on battery option, which covers more than just a short commute. Being a luxury car with luxury car features, the Model S really isn't in competition with "camry or accord or taurus" , that's the one thing "red billy" got right. 

Natural gas is cheaper than gasoline and burns cleaner, but range on compressed natural gas is limited and there are very few public refueling places. Compressed natural gas cars are sold mainly to taxi fleets and companies with their own refueling facilities, there is only one model for sale to the general public, the Honda Civic Natural Gas. 

Driving Electric is still less expensive than driving on natural gas, and there are far more public recharging outlets available. 

Jan 3, 2012 1:35PM
No electric car will EVER compete with the camry or accord or taurus. This nonsense and hype has been ongoing for 20 years and still only a few takers. They are good for a SHORT daily commute and that's about it. Electric car sales are in the thousands, natural gas car sales are in the millions already and they are just getting started. Natural gas makes more sense and they are cheaper to operate.
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