A Stock to Beat the Odds in 2012
Jan 3rd 2012 3:04PM
Updated Jan 3rd 2012 3:16PM
"A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be."
-- Wayne Gretzky, Hall of Fame hockey player
The odds are stacked against electric-car maker Tesla Motors (NAS: TSLA) -- a start-up that's trying to find its way in an industry where economies of scale favor global giants such as Ford, Toyota (NYS: TM) , and General Motors. Unlike traditional automakers, Tesla seems to understand where EV technology is headed, which could give the zero-emission-car maker a critical advantage over competitors.
The company faces many live-or-die challenges on the road to profitability. For one, the auto industry demands high-volume production of vehicles to cover the fixed costs of manufacturing and distribution. The costly process gives established automakers the upper hand, while limited resources hamper Tesla.
Narrow infrastructure for electric cars in the United States is another problem. However, that's slowly starting to change as more cities across the country install charging stations for gas-free vehicles.
Companies such as General Electric (NYS: GE) are at the forefront and are making big bets on the gas-free revolution. The company's new charging station, the GE WattStation, enables faster charging for EVs both at home and on the road.
Government regulations are also sparking the shift to EV transportation, with programs such as ChargePoint America, which is backed by $15 million in stimulus funding to provide 4,800 charging stations in nine states. It's only a matter of time until domestic roads fully support electric cars. Similar to the first automobiles before the advent of gas stations, the infrastructure will develop along with the vehicles.
The future of transportation
A more immediate challenge for Tesla will be a successful launch of its seven-passenger Model S sedan in mid-2012. Unlike the golf cart designs of competing electric cars, the 85 kWh version of the Model S promises superior performance to the tune of: zero to 60 mph in 5.6 seconds, a range of 300 miles at 55 mph, and an interior complete with a 17-inch touchscreen computer. However, critics wonder whether Tesla's new ride can live up to its performance targets.
At up to 300 miles on a single charge, Tesla's new sedan holds the record for electric driving range. Most impressive is the car's competitive pricing to its gas-powered rivals. Tesla's base model starts at $49,900 after the $7,500 EV tax credit, or the same price as the similar-sized Audi A6. The catch being that delivery of Tesla's base-priced model won't be available until this fall.
Wheels of fortune
Tesla's been operating at a loss since the company's founding in 2003, which isn't surprising given the severe economics of the industry. While sales of the Model S should drive growth for the company, it will need to rev up production to realistic levels if it wants to turn a profit sooner than later. Production is set for 20,000 Model S units annually after 5,000 to 7,000 during the ramp-up period in 2012.
For the time being, sales of the company's power-train components to others in the industry should help Tesla fund its operations and refine and adapt its technology to economies of scale.
Current partnerships with Mercedes maker Daimler, along with Tesla's $100 million deal with Toyota for the RAV4 electric power-train system put some big names behind Tesla. However, these third-party sales will have little effect on the company if it runs into problems with the launch of its Model S sedan.
Despite these concerns, I can't help but see the parallels between Tesla trying to prove relevant in a gas-powered universe and a mid-'90s Apple in a PC-dominated world. Could Tesla be the next Apple growth stock that will catapult from $27 a share to $400 a share in one fell swoop? Only time will tell.
Similar to Apple's vision for creating the best computer on the planet, Tesla aims to build the best automobile (electric or not) in the world. If Tesla's new electric model lives up to the hype, it would set the bar for the EV market and likely revolutionize the auto industry.
Tesla's best days are yet to come
Apple was known for creating products that people didn't know they wanted yet. In the same way, Tesla is creating demand for luxury electric vehicles, even before the infrastructure is in place. This is a company that actually understands what's going on in the autos business and is playing to the future of that industry.
Tesla (just like Apple's "Think Different" campaign) is paving the way to the day that electric cars rule the road. It is companies with this level of initiative that have built the world. Find out what other companies are positioned for serious growth in the year ahead -- click here to claim your free report: "The Motley Fool's Top Stock for 2012."
At the time this article was published Foolish contributor Tamara Rutter owns shares of Apple and Tesla Motors. Follow her on Twitter using the handle, TamaraRutter, for Foolish news and wisdom. The Motley Fool owns shares of Ford Motor and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Ford Motor, Tesla Motors, and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.
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