by Timothy Lutts
I originally wrote this on March 18, 2013, as the final installment of a series titled “Ten Stocks to Hold Forever.” You can see the background info on the concept here.
In the brief time since this was published, Tesla stock (TSLA) has performed superbly, gaining 48%, while ex-competitor Fisker is nearly bankrupt, and the subject of interest by no “distressed-company” buyers. (April 2013)
Though I work very hard to avoid falling in love with stocks, I will confess that TSLA is my favorite stock.
Tesla Motors was founded 10 years ago by Elon Musk, who made a small fortune selling PayPal to eBay, and it’s different from traditional automobile companies in five big ways.
First, its cars use no gasoline. They’re all-electric, recharged primarily by plugging in and secondarily by regenerative braking.
Second, its cars are made in California, guided by a business plan generally used for technology companies.
Third, its cars are not sold by dealers; they’re sold directly by the company, either in showrooms (like Apple) or remotely.
Fourth, Tesla carries no inventory. It has a backlog of orders, so each car is manufactured for a specific customer.
Fifth, Tesla offers no financing; it takes deposits when taking reservations, and is paid in full upon delivery.
In short, the Tesla buyer gets a much cleaner experience than what most of us are accustomed to when buying a car. And maintenance of the cars is simpler, too, with only tires, brake pads and windshield wipers needing regular attention.
It can go from 0-60 MPH in 4.1 seconds (with the biggest battery pack); that’s quicker than a Porsche 911. Or it can go 300 miles on a single charge. Its center of gravity is so low (the battery is the floor) that it corners like a go-kart. And it seats five adults, with room for luggage in both the back and in the front (where the engine is in most cars).
(Note: I’m not buying one until I can get two features I’ve grow accustomed to in my Audi: all-wheel drive and a back-up camera.)
The Tesla Model S has won:
- Motor Trend’s Car of the Year Award, with the first-ever unanimous vote.
- Automobile Magazine’s Automobile of the Year Award.
- Yahoo Autos’ Car of the Year Award.
In short, the car is wonderful. And the engineering has been nearly perfect.
Contrast that with competitor Fisker Automotive, born soon after Tesla and competing for the same market with a hybrid powertrain. Fiskers have had numerous technical troubles. Battery supplier A123 went bankrupt. 300 cars were ruined by Hurricane Sandy. And founder Henrik Fisker recently resigned, reportedly as the Chinese firm Geely (which now owns Volvo) discussed a takeover.
Tesla, meanwhile, is on target to turn a profit in the first quarter of this year, and to deliver 20,000 cars this year. And the Model S has been so well received that the company is delaying the production of its lower-priced SUV (Model X), so it can manufacture more Model S sedans.
Now, investing in automobile companies is always challenging, mainly because this is a mature industry. And investing in automobile startups has traditionally been an excellent way to lose money. But I think Tesla is going to succeed in a big way precisely because it is doing so much differently, because Elon Musk is an exceptionally capable leader, and because the world (this is a global story) is ready for a car that frees its users from the tyranny of the gas pump.