More Than Just Technology

A while ago I bought shares in Tesla. Not a long while ago, but prior to the quarterly earnings announcement that sent the stock skyrocketing to nearly a hundred bucks. I guess that’s what happens when a huge percentage of the stock is short and the company proves beyond any shadow of a doubt that it’s for real.

Last week Tesla was the subject of my weekly Globe and Mail column, which you can read here. In that article I explain the reasons behind my investment. But as is usually the case, it’s hard to include everything in an article that’s supposed to be 600 words. (I’m asked to submit 600 words and I usually push it to 800).

Here’s what I like about Tesla

• As I explained in the Globe article, they build a premium brand buy focusing on awesome vehicles, not just electric vehicles.  They built an expensive sports car and an expensive sedan.  Next comes an expensive SUV.  They’ve won awards and accolades from car reviewers.  They are becoming a monster brand.
• They’ve launched a network of super chargers to give batteries a 50% recharge in 30 minutes.  Oh, and they are free to use.  They’ve sold cars without even having a significant number of dealerships.  They’ve single handedly created an e-commerce situation for cars costing $90,000 or more in some cases.
• They’ve created a model where their expensive cars aren’t even THAT crazy expensive.  With government incentives and a US financing plan you can buy the car with no down payment and an out-of-pocket expense that is about $580 after accounting for fuel savings.  And they guarantee the highest blue book resale vale of any competing luxury sedan.
• The Model S 85 KwH battery pack can take me about as far as my family’s Lexus SUV on a full tank.  But while the Lexus costs us about $62 per average fill up (we usually refill before it’s empty), the Model S would cost me a “whopping” $8.25 based on Toronto hydro off-peak hour pricing.  In case you’re wondering I did actually dig into my hydro bill and figure out all of the variable costs that Toronto Hydro charges me.  There are a surprising number of poorly disclosed variable charges).  This translates into about $3,000 per year for an average family.
• Telsa has made electric cars not only cool (really cool) but super practical in terms of the ability to drive 480 km.  As soon as they install a supercharging station between Toronto and Montreal on the 401 (likely Brockville so Toronto-Ottawa traffic can use it too), I think there is absolutely no reason I wouldn’t own one as a primary vehicle.
• They are WAY ahead of other car makers because they have absolutely no legacy crap to deal with.  Every single car they make is automatically built for a modern day technology toolbox.  Over the air software updates anyone?  Show me a traditional car that does this?
• They’re PROFITABLE on a volume of about 20,000 cars per year.  That’s tiny volume.  They haven’t shipped any Model S cars outside of North America yet.  Hello world.  Their plant can scale to 400k vehicles per year.
• The CEO, Elon Musk, owns 24% of the stock and is buying more on the recent financing they announced.  This guy is not afraid to be disruptive and not only think but ACT outside of the box.

I could go on and on … just ask my wife  

Bottom line is I see Tesla as a disruptive force in the auto industry.  If they can sell this number of Model S sedans and I can still find it impossible to spot one on the roads in Toronto (and I live in an expensive area), there is absolutely huge potential here.  They’ve not launched an SUV yet.  They will.  They’ve not launched a pickup truck yet.  I bet they will with their 3rd generation platform coming sometime in 2015.

I see these guys as the next big auto brand, potentially as big as BMW, or even the mighty Ford or GM given enough time.

Why wouldn’t everyone (ok, most people) want to own an electric car?  Their cost will approach parity with gas, and they will be FAR cheaper to maintain and fuel.  Just think of all the electro-mechanical systems that don’t need to exist in an electric car?

Yeah, the stock has gone crazy since the last quarterly profit announcement.  And it might pull back big time.  This is a risky stock in the short term.   But as readers should know by now – I’m not a short term investor.  I like to own big trends that will go on for a decade or more.

Here’s one of those trends.  And I think it will take longer than a decade to play out.

Strap on the seatbelt.  This is gonna be a fun ride.

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