Tesla Model 3 and an Underappreciated Aspect of Tesla Ownership

This is a prototype of the Tesla Model 3, a battery-powered car that will go 215 miles on a charge and cost $35,000.

tesla-model-3

In the hours before the prototype was unveiled last week, Tesla accepted $1,000 deposits from 115,000 people.

In the days that followed, the number grew to top 276,000 people, and it’s still climbing. And that’s for a car that won’t even go into production for more than a year!

Those reservations will translate into revenue of $9.8 billion for Tesla if everyone buys the base model—less if some people cancel their reservations and more if some people add options.

To this point, most commentators on the situation have focused their attention on the car, and that’s understandable; it’s a revolutionary, beautiful, yet practical machine.

But few people have mentioned another revolutionary aspect of the car that is equally appealing to many people—the fact that you don’t need to deal with car salespeople to buy one!

Note: I’m far from an unbiased reviewer; my Tesla Model S, delivered in September 2013, now has more than 33,000 miles on it. And while I’ve had occasion to visit a Tesla service center several times since then, every visit has been refreshing, because Tesla’s culture is entirely different from those of traditional auto dealers.

Traditional auto salesmen make their money through commissions, and the main profit center of the dealership is through service. As a result, car salesmen are not well respected.

honesty

At Tesla, contrarily, the service centers don’t aim to make a profit; they aim to make their customers happy. And so far they’ve succeeded.

So, when you’re evaluating Tesla’s cars versus those of the competition, don’t forget to factor in the value of a retail/service experience that is actually pleasant. It’s an underappreciated aspect of Tesla ownership.

Tesla Motors Hit by Lawsuit

by Timothy Lutts

Tesla Model S on fireThis is a picture of a Tesla Model S in flames, after it ran over some road debris near Seattle back on October 1, 2013.

Since then, there have been two more Tesla fires. One was in Mexico at 4 AM. It occurred after a speeding driver drove across a roundabout and collided with a tree—not exactly recommended behavior. The other, in Tennessee, occurred after a Model S drove over a tow hitch on the highway.

In all three cases, the puncturing of the car’s battery pack resulted in a fire. And in all three cases, the occupants of the escaped unharmed, reinforcing supporters’ convictions that these cars, as the National Highway Safety Administration concluded, are the safest cars on the road. Also, in all three cases, the drivers were anxious to take possession of a replacement Model S.

But just last Friday, Tesla Motors was hit by a lawsuit from the firm of Pomerantz, Grossman, Hufford, Dahlstrom & Gross, alleging that Tesla’s management made false and misleading statements and failed to disclose material adverse facts about the company’s business. According the suit, which is open to shareholders who bought between May 10 and November 6, the cars’ battery packs suffered material defects that led to the fires, and the company’s failure to warn about that risk was misleading.

The lawyers also threw in a claim that “Tesla was unable to maintain a level of automobile deliveries sufficient to satisfy analyst concerns,” which to me is just silly. Tesla’s deliveries are growing at a nice rate, and the company’s job is not to satisfy analysts.

As to the fires, it’s worth knowing that there are roughly 150,000 car fires in the U.S. every year. These fires kill an average of four people every week. They don’t make national news; they’re far too common. But as battery-powered Teslas are new and unfamiliar to people, the three Tesla fires have made news.

But this lawsuit is not really about the automobiles; they’re marvelous vehicles, and everyone who has driven one wants one. This lawsuit is about money!

Specifically, it’s about getting investors who bought the stock relatively late to band together and complain about losing money in the stock’s decline since its peak of 192. If they win, the lawyers who initiated the suit get a nice payday.

winds-blow-hardWell, here’s my two cents, starting with one of the instructive buttons on my wall.

It reminds me that when a person or company is flying high, forces will eventually appear that work to knock that person or company down. I’ve seen it happen time and time again with both small hot stocks (Hansen Natural, for example) and big well-known stocks (like Apple).

When those forces arrive, the stock retraces a large part of its uphill climb, and that’s what Tesla is doing now. After gaining 466% this year, TSLA is now trending down, “helped” by stories about battery fires, stories about potential battery shortages, and stories speculating (among other things) that fearsome competitors like General Motors (LOL) will suddenly come out with competitive products.

Now, you can argue that this decline is not rational, given that the company is still growing at a good pace and projections for the future are bright. But the stock market is never rational, and success in investing does not come from being rational; it comes from understanding the irrationality of the market and using that knowledge to make intelligent investment choices.

For me, it was rational to buy Tesla late last year when the stock was just getting going and upside potential was huge. To many people, it looked irrational because there were so many unanswered questions about the company. But in the months that followed, more and more people discovered how good the cars were and recognized the company’s growth potential, and a lot of them bought the stock, pushing its price higher and higher. Also helping was a broad bull market.

But when the stock was up 400%, sitting on a high hill, and the object of admiration and adulation by so many people, buying was not so intelligent, because at that point, there were a lot of investors with profits in the stock, ready to cash out when the stock turned down.  And then the stock turned down.

This is a normal phenomenon. It happened with Hansen Natural years ago. It happened with Crocs. It happened with Apple more recently. And now it’s happening with Tesla. On the way up the mountain, the good news and the profit engender more good news. And on the way down the mountain, the bad news and the stock losses engender more bad news, and lawsuits (and today, even a little story about George Clooney, who was dissatisfied with his early Tesla Roadster, which from today’s perspective we might call a beta version.) Also helping is a weaker stock market, especially for growth stocks.

History tells me that Tesla’s downtrend will eventually run its course, and at the very bottom, the news will be bad. That’s when stocks bottom. But getting from here to there will take time, and there’s no use arguing with the stock while this evolution takes place. It takes time for the crowd to change its mind. And it will take time for this lawsuit to run its course.

Eventually, assuming that Tesla will continue to grow both revenues and earnings, the stock will begin a new uptrend. But until then, there are more attractive investments than Tesla.

Road Trip in the Tesla

by Timothy Lutts

There’s an interesting sign on the Route 90 in Massachusetts (also known as the Massachusetts Turnpike or Mass Pike).

Highest Elevation on the Mass PikeIt reminds us that even though Massachusetts is not known as a mountainous state, you’ll find nothing higher between it and South Dakota if you travel this interstate highway.

The sign has been there a long time, and until recently, it was nothing more than an intellectual curiosity. But then I got my Tesla Model S, which runs solely on battery power. And after a few weeks of ownership, I took a 250-mile road trip, out the Mass Pike, around Albany, New York, and up to Lake George.

I’ve already written about how the Tesla delivers an unparalleled driving experience, thanks to its ability to deliver as much power as the driver wants, instantaneously and quietly. But this road trip would test the limits of the Tesla’s rated 265-mile range. And I was a bit worried about getting over those hills—because going uphill takes more power. Happily, going downhill uses less, and in the Tesla, going downhill actually puts energy back into the battery!

That 265-mile range was the government’s number, and as we all know, most drivers fail to equal the government numbers, especially if they like to drive 80 mph, like me.

Fortunately, Tesla’s web site includes an excellent user forum with every topic of interest to owners of these revolutionary cars, and the topic of long-distance driving has been covered at length.

The main pieces of advice are these. Make sure tires are properly inflated—something I always do anyway, charge battery fully (otherwise, it’s best to charge the Tesla to 80% of capacity to prolong battery life), and go slow, using cruise control when possible. Finally, start the journey at a relatively slow speed and monitor battery status along the way; you can always finish at a faster pace if the battery has power to spare.

So that’s what I did, monitoring distance to destination, “rated range” of the battery (based on Fed numbers), “projected range” of the battery (based on the past 30 miles of driving), kWh used for the entire trip, and Wh/mile. This is a great car for people who love numbers!

Also, I had located a few places on the route where I could stop and recharge if necessary. And after 200 miles, just north of Albany, I did stop for an hour in Clifton Park, New York to charge for an hour at Kohl’s—for free.

Which brings me to the pleasant tale of ChargePoint, the world’s largest provider of electric charging stations—there are now more than 13,000, including eight in City of Salem public garages. ChargePoint doesn’t make the charging stations, but it does market them to property owners (typically, cities, hotels, restaurants, stores and universities) and it operates the network that makes the system work. And the cool thing is that the property owners choose what to charge their users, and it’s typically nothing! So for an hour in Clifton Park, I took a walk, bought a newspaper and did the Thursday New York Times crossword puzzle while adding 18 miles of range to the Tesla.

In the end, I didn’t need that charge, but I wasn’t 100% certain that I’d find a charge in Lake George, and as there were no other chargers up there but the one I was aiming for at the Holiday Inn, the Clifton Park charge was a bit of insurance. Happily, the Holiday Inn charger was all I expected, and it was free, too.

Bottom line, the trip out was 250 miles, I used 68.8 kWh of electricity, at 267 Wh/mile.

Coming home three days later, I did the trip non-stop (knowing my garage charger was at the end), and the final tally was 247 miles, using 66.3 kWh, at 267 Wh/mile.

And going over that peak on the Mass Pike was a piece of cake.

In fact, one of the ongoing discussions on the Tesla forums is about the most efficient way to handle the downhill segment of such hills—whether it’s best to stay in cruise control at say, 70, and let gravity recharge the battery (at perhaps 70% efficiency) or let the car pick up speed (to as high a speed as is comfortable—maybe 85?) before engaging regeneration.

There’s no easy answer; it’s one of the intellectually fun aspects of the car.

Driving the Tesla Model S

by Timothy Lutts

Do you remember the first time you fell in love?

The first time you had sex?

The birth of your first child?

That’s the feeling I have right now, a week after taking delivery of my new red Tesla Model S.

my-tesla

Admittedly, some of the pleasures of driving the Tesla are slightly more intellectual than those earlier pleasures. But they’re no less enjoyable!

For example, one of the pleasures is showing people what’s under the hood. There’s nothing there, just a big empty carpeted space that could easily hold a ten-year old child. Then I show them the trunk in the back, which has even more space than the one in my last car, an Audi A6. That’s when they ask, “Where’s the engine? Where’s the battery?” Because none of that stuff is visible. The battery is entirely under the floor, between the four wheels, yet the car sits as low as a normal sedan. And the one big motor that drives the rear wheels sits right above the real axle. Somehow, it’s under that great carpeted trunk.

The best comment I’ve had yet after this show came from my nine-year-old nephew Peter, who commented, “This car should have wings.”

And it’s not just kids who are impressed.

A few days after I received the car, I took it to my local garage for the state-mandated inspection. You would think a guy working in a garage would know about Tesla. But this guy, who was perhaps 35 years old, had no clue! He asked if Tesla was a new company. He asked if the car was purely electric, like his computer said it was. And then he affixed the inspection sticker, without inspecting anything! Not even the brakes, horn or lights!

Tesla Mileage StickerHere’s the Federal-mandated sticker that came on the car.

It’s nice to think about saving $8,100 in fuel over five years—and the $7,500 Federal Tax Credit is nice, too. But the truth is, the car was expensive, and I know too much about investing to even pretend this car is a good investment. If I wanted fiscally sensible, I’d buy a three-year-old Toyota.

But here’s what I get with the Tesla.

The ability to never pump gas again, especially in inclement weather. All I do is plug it in every night (in my garage), just like I plug in my phone and my iPad.

Simplicity. I’ve been maintaining gasoline-fueled cars for nearly four decades, and it’s nice to have a car that’s so simple, the only fluid it will ever need is windshield washer fluid!

A 17-inch touch screen that controls all of the car’s functions except the windows the brake and the accelerator (I’ll get to that key item in a moment).

Those functions include:

Navigation by Google Maps, with live traffic updates showing where traffic is and isn’t.

An energy graph showing energy use over the past 5, 15 and 30 minutes.

A web browser, using the car’s 3G Internet connection.

Music, from either my phone—via Bluetooth connection or the built-in USB port—or old-fashioned AM/FM radio or my new favorite, Slacker Radio, which comes in over the Internet connection. I push a button on the steering wheel, say “Play The Rolling Stones” or “Play Beethoven” and that’s what I get. It’s almost magical.

Best of all, however, is the driving experience.

Like the Toyota Prius, the Tesla starts out quiet. (In fact, the Tesla’s coefficient of drag is even less than that of the Prius.) But unlike the Prius, which has its engine kick in eventually, the Tesla stays quiet, with only wind and tire noise growing as speed increases. I like quiet, because my music sounds better, and I really like to listen to music when I drive.

The Tesla feels really solid, in part because it’s heavy, 4700 lbs, and in part because it was designed to be stiff and strong. No doubt that helped it get the highest crash test rating in history from the National Highway Traffic Safety
Administration.

Because the heavy battery pack is under the floor, the car’s center of gravity is extremely low, which makes it feel extremely stable, with very little body roll, even in tight corners. The guys at National Highway Traffic Safety
Administration couldn’t flip it.

Yet because all that electricity is on tap to drive that motor as quickly as your foot can give it instructions, the car’s response to the accelerator pedal is almost instantaneous. Zero-to-60 is 4.2 seconds, and even at highway speeds, you can mash the pedal and the vehicle will leap ahead. And that’s really fun. It’s also really different from any gasoline-powered car, which is hampered by combustion cycles and gears and all that outdated internal combustion machinery. Furthermore, the car not only accelerates really quickly if you ask it too, it also decelerates fairly quickly when you ease up on the accelerator, taking the kinetic energy of the car and turning it back to electricity to put back into the battery! This regenerative braking takes a little time to get used to, but it’s a lot of fun when you master it, and it’s a key factor in the car’s rating of 89 miles per gallon equivalent.

Earlier this year, Motor Trend named the Tesla Model S the 2013 Car of the Year and Automobile Magazine named it the 2013 Automobile of the Year.

They did the right thing.

Related: Buying a Tesla

Buying a Tesla

by Timothy Lutts

Last night, my oldest child’s car wouldn’t start. She’d been visiting my wife and me with her husband, and when it came time to leave, instead of vroom, vroom, all she got from her old Volkswagen Passat was click, click.

Called to assist, I used my lifelong experience as an owner of cars and diagnosed the problem. The starter sounded like it was trying to work, so I figured the battery charge was low, which meant (since it’s summer) that the problem was probably the alternator and not an old weak battery. Solution, connect jumpers from my car, wait a while, and try again.  It worked! And she drove off to her friendly Volkswagen mechanic to get it fixed.

But very soon, I won’t be able to help her like that, because very soon, I’ll be driving a car that doesn’t have a 12-volt battery. Instead, it will have 6,831 lithium ion batteries made by Panasonic, and it won’t have an engine.

It also won’t have a starter, an alternator, a gas tank, an oil tank, a radiator, an exhaust system, belts, pulleys and myriad other parts that make today’s cars so complicated.

I’ll just plug it in every night in my garage, the same way I plug in my cell phone. I’ll never pump gas again (well, maybe for my wife’s car). And every day I’ll have nearly 300 miles of range on tap. I’ll be buying a Tesla.

Tesla Model S

It’s a Tesla Model S, the car that recently received a near-perfect score of 99 from Consumer Reports, a score that has only been given once before, to a Lexus. The Tesla Model S is not cheap. Prices start at $63,570.

But one reason I can afford it is that I first recommended Tesla stock (TSLA) to my Cabot Stock of the Month Report subscribers back in December of 2011, and since then the stock is up 424%.

And I think there’s far more upside ahead—in the long run—because company founder Elon Musk’s goal is not simply to sell lots of electric cars (though he’s doing it really well, and without advertising); his plan is to change the world, by supplanting the old gasoline-centric automotive world with a new electric-centric automotive world.

So after the Model S will come the Model X crossover SUV. And after that will come a small, mid-priced sedan that’s expected to directly challenge the BMW 3-Series on price and surpass it in performance. I think Tesla will sell a ton of them, because its cars are so much fun to drive.

Plus, over time, the cars save money, because they can be refueled using solar power and they require almost no maintenance!

Now, other car companies aren’t sitting still why Tesla forges ahead. But no one else makes a car that’s even close. The Chevy Volt and Nissan Leaf are OK, (I actually drove an early Leaf), but driving them is no fun at all. Plus, Chevy and Nissan are NOT trying to change the world; their bread-and-butter is still gasoline-powered cars. So they’re not really motivated the way folks at Tesla are.

Furthermore, Tesla is not just changing the driving experience, it’s also changing the refueling experience, by building a network of Superchargers where Tesla owners can recharge for free, for life. Plus, it’s changing the BUYING experience. You don’t buy a Tesla from a salesman, spend hours haggling about price and then leave fearing you’ve been cheated. Instead, you buy it the way you buy an iPhone. The car’s price is fixed, period. And currently, because there is no Model S inventory, you order a car with the exact color and options you want, and they build it for you, just the way you want it. Mine will be red, with a grey interior and the premium sound system. I can’t wait.

 

 

 

Tesla Cold Weather Test

by Timothy Lutts

Tesla cold weather testI woke up this morning to find an email from a very smart investing friend in my inbox, linking to a great video about a Tesla cold weather test, driving the Tesla Motors Model S in snow in Norway. It’s not only very illuminating in regard to the car’s performance, it’s also quite funny. (Note, unless you speak Norwegian, you’ll have to read the subtitles.)

FYI, My wife and I both drove the Model S a few weeks ago and were very impressed. One major feature not mentioned in the video is the car’s quietness. Because it’s powered by one electric motor, and that’s at the rear of the car, there is none of the NVH (noise, vibration and harshness) that we’re all so accustomed to in automobiles. It does exactly what you want at all times, quietly and smoothly and comfortably.

Folks on Wall Street are beginning to recognize that this company is changing the world, and eventually, the folks on Main Street, who have embraced the appliance-like Prius, will recognize it as well.

More Tesla Articles:

Driving the Tesla Model S- Earlier this year, Motor Trend named the Tesla Model S the 2013 Car of the Year and Automobile Magazine named it the 2013 Automobile of the Year.

Buying a Tesla- Very soon, I’ll be driving a car that doesn’t have a 12-volt battery. Instead, it will have 6,831 lithium ion batteries made by Panasonic, and it won’t have an engine.

Bullish on Tesla- Tesla was founded and is led by Elon Musk, the genius who invented PayPal. There were co-founders but Elon is the man at the helm today.

Bullish on Tesla

by Timothy Lutts

This was published on February 13, 2012, back when TSLA was trading at 35. It was titled, “Romance, Transition and Reality”.

Moving on to a recommended investment, I’ll start by saying I could recommend 100 stocks today. That’s how strong this market is. Among well-known names alone, I could recommend Whole Foods Market (WFM), Ulta Salon (ULTA), Caterpillar (CAT), Home Depot (HD), FedEx (FDX), Lululemon (LULU) and Michael Kors (KORS).

All are growing, all are strong, and all have been recommended in Cabot advisories.

But instead I want to talk a bit about Tesla (TSLA), the electric car company.

The high points, quickly, are these:

Elon MuskTesla was founded and is led by Elon Musk, the genius who invented PayPal. There were co-founders but Elon is the man at the helm today.

The company is headquartered in Silicon Valley, and run like an Internet company, not an old-fashioned car company.

Its strategy of developing, building and selling high-priced cars first and then letting technology trickle down to lower-margin mass-market cars is working brilliantly; in fact, fourth quarter earnings were released last week and they were very good. Furthermore, Musk promises a profit for 2013!

And the company’s engineering is so good that Mercedes-Benz has contracted for Tesla to develop a new, all-electric powertrain, and Toyota has contracted to buy production powertrains in the second quarter of 2012. This is a great endorsement of Tesla’s cost structure; there are no pensions, and the work force is young, non-union and healthy.

But here’s what I like best about the company, and why I think it’s a long-term winner.

The company has made no mistakes!

Its cars perform superbly … while Chevy Volt, for example, has battery fires.

Management has achieved every target it has set, while Fisker has laid off people because it failed to meet a government load deadline.

To me, this speaks of top-quality management, and in the end, management is what you’re investing in. So far, Tesla’s management looks golden.

And the stock looks good, too.

It came public in June 2010 at 17, and is now trading at 35, just 4% off its all-time high.

Now, some people will say the stock is too expensive. After all, 2011 revenues were $204 million and the market is now valuing the company at $3.7 billion.

By comparison, you can buy General Motors for 28% of sales, and Ford for 35% of sales.

But I think valuation is irrelevant at this point.

What is relevant, contrarily, is the concept of Romance, Transition and Reality, a concept pioneered by my father, Carlton Lutts, who was both a romantic and an engineer.

He wrote, “A stock, like love, thrives on romance and dies on statistics.”

Which means that stocks that catch the public’s imagination can soar to extremes way before such soaring is justified by the numbers. It’s all about perception, and it happens with every new technology and in every bull market.

I’ve seen it in networking stocks; the original king was Cisco.

I’ve seen in data storage stocks; remember Iomega?

I’ve seen it in solar power stocks; First Solar shone brightly.

I’ve seen it is footwear; Crocs ran ahead of all the rest.

I’ve seen it in medical technology; remember Intuitive Surgical?

I’ve seen it in online brokers; investors in Schwab raked in the money.

I’ve seen it in communication stocks; remember Qwest and XM Satellite Radio?

And I’ve seen it in Internet stocks … America Online and Yahoo and Amazon.com, to name a few.

So here we are, at the dawn of a revolutionary new era in the automobile business, and the easiest thing for people to do is look at GM and Ford, stocks they are comfortable with, and discuss valuation.

Meanwhile, the real opportunity is in the unknown, in Tesla, where the “unforeseeable and incalculable” mean great riches are possible a short way down the road. The choice is up to you.

My Favorite Stock: TSLA

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.

Tesla Model S, tslaBut here’s the best part. In addition to all the above, the company’s first high-volume car, the Model S, is simply a joy to drive!

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.