Tesla Motors (TSLA) has been making headlines with the announcement of their new Model S Sedan. Is this the breakthrough vehicle that will help EVs gain the foothold to go mainstream? Tesla CEO Elon Musk certainly has such ambitions with this project, as he has stated his expectation that 50% of all vehicles will be electric-powered within 20 years -- and expects his company to play a major role in getting the world to that point.
When looking at the Model S Sedan, the first question that comes to my mind is who is the target customer?
After a $7,500 Federal tax credit, the car's price tag to customers is $49,900. Tesla believes this is a mass-market product, and already has 10,000 orders. If you run some numbers on the Tesla calculator, the electricity charging costs for going 25 miles is $0.85 ($.034 per mile) -- assuming the US national average electricity price of $0.12 per kilowatt hour. These numbers aren't better than other electric vehicles, like the Chevy Volt or Nissan Leaf, so the same criticism applies: the money saved on re-fueling isn't enough to make up for the high costs of the vehicle. Anyone who wants to take electric vehicles mass market has to find a way to break this paradigm.
From this perspective, Tata Motors (TTM) is looking much more impressive. Tata is working on an EV that will be priced at $20,000. It remains to be seen, though, if this car is good enough, of if it is just cheap enough. Most likely it won't be as good as the Tesla line, but if it can meet a minimum threshold requirement of being good enough, that may be all that's needed.
More importantly, though, these companies are still targeting people who are driving gasoline-fueled cars, and trying to convince them to change. A far more prudent strategy, and one I'll insist upon before making any investment in this space, is to target customers that currently are not served by gasoline-powered cars. As we are moving towards greater urbanization, an electric vehicle aimed at city-dwellers who currently are not satisfied by gasoline cars is especially appealing, in my opinion. So in addition to finding the right spot on the price/quality axis, manufacturers also face the marketing challenge of creating a new customer set. This is what I regard as the far greater challenge -- but the firm that succeeds in conquering it will, in my opinion, be positioned to dethrone the major automobile manufacturers and generate a corresponding market capitalization for shareholders.
One point I feel should be noted in any discussion of EVs is that of the big picture of energy and environment. While I am watching the EV space because I think there is a chance that the right company could be a mind-bogglingly astounding investment opportunity, bringing shareholders Google or Apple-style returns, ultimately I don't think the costs numbers are going to make sense until nuclear power is more widespread. Nuclear can bring the marginal electricity costs much lower. Moreover, as coal is still the primary means of electricity generation in the world, I'm not sure if EVs actually bring any environmental benefit; if the dangers of coal and the relationship between coal and electricity are understood, that could take away some of the glamour EVs get for supposedly being environmentally friendly.
Tesla is currently up near 18% year to date. The company's losses are growing on a quarterly basis, while its debt/asset ratio is climbing. Tata, on the other hand, is profitable and issuing dividends. Ultimately, though, I don't think either is a good investment at the current time; Tesla doesn't have an economically viable product or an appealing balance sheet, and we need to see either more progress or a much lower share price for Tata (the stock has rallied over 29% year to date).
Article by InformedTrades