Sometimes, I like to go over to other websites and read what they have to say. And not even the ones that are mostly pictures either. The real ones with real content. Like Seeking Alpha, one I used to write for. Why I quit that is another story for another day, like say August 29th, 2189. Let’s all meet up then and I’ll talk about it.
Anyhoo, one of the big topics over at that particular webpage is Tesla Motors (NASDAQ:TSLA), maker of NEW FANCY electric cars. These cars (there’s only 2 models out right now) run purely on electric motors. They’re ultra safe, at least according to the crash test people, accelerate from 0-60 faster than any car that’s not a Ferrari, don’t require oil changes, and their owners will never have to pump a liter of gas again.
Sounds pretty sweet, right? Well for $80k a pop for the base model, these cars better be awesome.
It’s probably a pretty cool car, but I wouldn’t exactly know because I’ve never actually seen one. They’re not producing them out at a fast pace either, even though demand is robust enough that there’s a wait list. Currently, there are only 25k of them on the road, mostly in the U.S., and after 3 years of production. Ford sells that many Focuses in about a week and a half.
Anyone under 40 can figure out that electric cars are the future. Back in 2010 General Motors came out with the Volt, which had an electric engine with a range of ~50 miles (current Tesla models have ranges of over 200 miles, in comparison) and a backup gasoline engine when needed. Nissan came out with the fully electric Leaf for the 2011 model year, priced it below the Volt, and now offers a model with a 120 mile range for about $28k in the U.S. And that’s not even getting into Ford’s entrance into this market with their fully electric Focus, and probably 5 more I’m missing. Competition is here, and it’s only going to intensify in the future.
Tesla is doing a lot of things right too. One of the reasons why they don’t produce more vehicles is because they’ve got an exclusive deal with Panasonic for their batteries. These batteries are obviously superior, just look at the range difference. They’ve also got the advantage of being able to focus exclusively on electric, while larger companies are typically taking frames and other parts from gas powered cars and just using them. Tesla also has no dealerships and their vehicles require very little in the way of repairs since they don’t have as many moving parts. The no dealership thing is a huge advantage. Nobody likes going to the car dealership.
Okay, you’re convinced. It’s time to go buy Tesla shares. RIDE THIS BAD BOY TO MILLIONAIRE LAND, BABY. Uh, you kinda missed the boat.
So yeah, you might have been a little late on that one. Don’t fret little one. There are real companies to buy. Like, ones that actually make money.
Tesla hasn’t actually turned a profit yet, at least on an annual basis. They did post a quarterly profit once, but that was only because they had a bunch of tax credits from the U.S. government. I guess that counts. Investors haven’t let that get in the way of giving this high flying company a $29.8B market cap. Remember, this company has sold a grand total of 25,000 cars. In three years.
During 2013 Ford sold around 2.5M cars. Just in the United States. I couldn’t find their worldwide numbers after 14 seconds so I gave up because I am an impatient person, but I did find where they sold an additional 950,000 cars in China. Ford made $7B in profit last year and has a market cap of $60B. What would you rather spend $30B on – all of Tesla which barely breaks even or half of Ford, which would get you $3.5B in profits? Ford pays for itself in 9 years. Tesla certainly does not.
Here’s what happens when Ford issues disappointing sales numbers. The market shrugs and the shares fall 1-3%, depending on how bad the miss was. And when Tesla misses, shares are down a minimum of 10%. You know why? Because one of these companies is a mature business and the other one is speculated on by overexcited fan boys. Don’t believe me? Go look for yourself. There are a million such Seeking Alpha articles out there.
Tesla needs to come out with lower priced models or they will never be anything more than a fringe player. There’s nothing wrong with being a fringe player, but eventually the market realizes it and prices the stock accordingly. Tesla does have plans for a lower priced model in the future, but in the meantime most buyers will have to borrow quite a bit to buy one, perhaps after they look around and try a car loan calculator.
When it comes to investing, it’s fun to pick the high flying company of tomorrow. But that company tends to come with a huge downside risk if they misstep just a little. For every Amazon there’s a Pets.com. Take your investment dollars and put them towards companies that are more boring. You’ll make more in the long run and you’ll be able to sleep at night. Leave the gambling for Vegas.