by Will Ashworth | October 4, 2012 7:00 am
Tesla Motors (NASDAQ:TSLA) isn’t having a very smooth ride lately. Having finally launched its much-awaited $50,000 Model S sedan in June, Tesla’s stock got pounded in late September after it disclosed production snafus that will keep Model S output below targets.
That brings into question the carmaker’s ultimate survival. But for the moment, forget share prices. Tesla’s ability to prosper and grow isn’t good just for shareholders, it’s good for America. Innovation made the U.S the world’s leading economy — and that’s what will keep it there.
InvestorPlace writer Tom Taulli speculates that perhaps Tesla’s problem is that it has brought too much innovation to the party too quickly and that the marketplace just isn’t ready. Citing Webvan’s home delivery of groceries — which began with much hope in June 1999 but ended in bankruptcy in July 2001 — Taulli provides readers with a classic example of what happens when you’re too far ahead of the curve.
The electric car’s Achilles heel has always been the dilemma of charging the vehicle. It takes five minutes to fill your car with a tank of gas, pay and be on your way. Using one of the six “Superchargers” Tesla has installed at California rest stops, it still requires a half-hour charge in order to drive 150 miles.
That miles per charge pales in comparison to this: John and Helen Taylor set a record in May when they drove a 2012 Volkswagen Passat SE TDI (turbocharged diesel) sedan with six-speed manual transmission 1,626 miles on a single tank of fuel. Granted, that’s an extreme example of “hypermiling,” but this gap, along with the cost, is what’s holding back consumers from making the switch to electric vehicles.
Motor Trend has a very informative article about Tesla’s Supercharger that illustrates why America needs Tesla to survive. Elon Musk and the rest of his team in California are big thinkers and dreamers. They’ve chosen to be a part of the solution to the question: How does America ween itself off fossil fuels?
By building a Supercharger network across America and parts of Canada, which Tesla owners can use for free, the company is providing solar-powered refueling that will add more electricity to the grid in a given year than what’s taken from it.
How cool is that?
Tesla is building cars that look good, can go fast and are generally carbon-neutral to the environment. Understanding that consumers are concerned about the distance capabilities of car batteries, it has used solar-powered innovation as the impetus for a national network of charging stations. For every Solyndra that exists, there’s a SolarCity (installer of the solar panels on top of the Supercharger stations and another Elon Musk company) innovating its way into the hearts and minds of consumers. In 2012, SolarCity was named one of world’s most innovative companies by Fast Company.
In order for America to recapture some of the manufacturing jobs it’s lost to China and elsewhere over the past couple of decades, it needs innovation to flourish. According to Hal Sirkin, managing director of Boston Consulting Group, up to 3 million jobs could return to the U.S. over the next decade due to a narrowing gap in wages between itself and China. Once as high as 22 times Chinese wages back in 2000, they’ll be just four times higher by 2015.
Add the logistical costs of producing goods thousands of miles away, and it becomes a much easier decision for CEOs (even Chinese computer-maker Lenovo is bringing production to the U.S.). Multiply the innovation ratio, and the number of jobs created and returned to America rises exponentially.
Taulli is right that investors need to be careful when investing in highly innovative technologies. You never know when they could go boom. Tesla’s cash flow declined by $111 million in the first six months of the year, it’s had some of the conditions on its $465 million government loan waived and it’s looking to sell an additional 6.9 million shares to the public to stave off a cash crunch. All of this as it struggles to get the cars out the door.
Tesla is a risky investment. I wouldn’t make it more than 3% to 5% of your portfolio. However, how many times can you say you’ve owned the stock of a business that’s truly making a difference in the world? Vision is something that very few companies have. America’s future is stronger with a viable, profitable Tesla in the mix.
It’s a big question mark right now, but definitely worth pursuing.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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