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The Case For — and Against — Tesla Stock

EV maker is at a crticial crossroads. Should you buy?

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The Bears: Tesla Can Sell — It Just Can’t Sell Enough

By James Brumley

If investors got paid with “cool,” then shareholders of Tesla stock already would have been paid a mint, with more on the way. Unfortunately for them, the only thing that actually pays the bills is money, or profits — one thing that’s not on the visible horizon for the electric vehicle manufacturer.

It’s doubtful Tesla Motors ever thought its Roadster would be a huge mainstream success. Then again, that was never the point. The vehicle (which looks like a Lotus, handles like a Ferrari and comes with a $110,000 price tag) was meant to get attention, and serve as a proof-of-concept for electric vehicles.

And it has done the job. Now something of a household name, Tesla is moving on to something more practical and marketable to consumers — an all-electric sedan, just called the Model S.

With four doors, a trunk and a base price starting at $49,000, the basic Model S clearly is an easier sell to the average consumer than a sports car would be. But, there’s the rub. While the electric sedan might be infinitely more marketable than Tesla’s high-performance sports car, it remains considerably less marketable than comparable cars — electric or otherwise — to the average consumer.

For starters, while it’s always nicer to get from point A to point B in style (and all of Tesla’s cars just ooze class), the average consumer looking to cut back on the emission of greenhouse gases also tends to be a value-oriented consumer. Why spend a minimum of $49,000 on a vehicle — nice as it might be — when the next generation of the all-electric Nissan Leaf is going to be priced in the low $30s? The Chevy Volt also is apt to come down in price as time moves ahead, from the current cost in the high $30s to something on par with the Leaf.

For those consumers who are willing to spend at least $49,000 on a vehicle — and as much as $70,000 for just the basic sedan — it’s not as if the competition to worry about is the Leaf, or the Volt, or the upcoming electric version of the Ford (NYSE:F) Focus.

At that price point, Audis and Mercedes are on the table. They might not be electric vehicles, but electric or not, they can be awfully tempting to a potential car-buyer. (It’s amazing how “being green” can become much less important when behind the wheel of an Audi A6 sedan, which more than holds its own against the Tesla Model S sedan in terms of price as well as performance.)

All that said, with lower-priced competition on one side and luxury competition on the other, Tesla’s biggest hurdle might not be another automaker at all. Rather, it might simply be the fact that Tesla vehicles are still all-electric vehicles, which come with a host of logistical headaches most consumers just don’t want to deal with.

One of them is the perception of a limited driving range. Tesla’s top-tier battery option offers up to 300 miles’ worth of driving distance, and to the company’s credit, the vehicle can be plugged into any standard electrical outlet. Until outlets are available in the middle of mall parking lots and in parking garages, though, the vehicles just aren’t quite as flexible as needed for most consumers — and certainly not compelling when the price tag can get more than halfway to six figures.

Oh, Tesla will find thousands of buyers for its vehicles. In fact, it already has. But it must find tens of thousands of buyers to have a real shot at turning a decent profit. That’s an awfully tall order — especially knowing the lower-end EVs aren’t even selling all that well despite being considerably more affordable.


Article printed from InvestorPlace Media, http://investorplace.com/2012/10/the-case-for-and-against-tesla-stock/.

©2014 InvestorPlace Media, LLC

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