Tesla Has a Target on Its Back

by Jonathan Berr | September 18, 2013 12:40 pm

Tesla Has a Target on Its Back

Earlier this year, General Motors (GM[1]) CEO Dan Akerson sounded the alarm at the 104-year-old company about the threat posed by electric vehicle upstart Tesla (TSLA[2]). It seems the largest North American automaker got the message.

GM on Tuesday announced it was working on a $30,000 electric car that could go as long as 200 miles on a charge, matching the range of Tesla’s Model S at less than half its $71,000 sticker price. Shares of Tesla, which have skyrocketed more than 391% this year, traded down on the news. General Motors rose $0.49 on the day Tuesday (1.4%), closing at 36.71.

Though Detroit-based GM was cagey about the details, such as when such a vehicle will hit the road, the announcement may be a wake-up call to investors about Tesla and its highly confident CEO Elon Musk.

Over the past few months, Tesla has received a torrent of positive publicity that few companies could ever dare dream of achieving. Not only were its second-quarter results spectacular, but also Consumer Reports gave the Model S the highest rating in its history. The car also earned 5-star ratings in every category from the National Highway Transportation Administration.

Part of Musk’s genius is his flair for self-promotion. He recently announced that he was taking his family on a cross-country trip in one of his vehicles to highlight the company’s network of chargers. (He likened himself to Clark Griswald, the character played by Chevy Chase in the Vacation movies.)

Charging is a particular sore subject for Tesla after a New York Times reporter took a test drive in Model S and complained it wasn’t able to hold a charge. Musk later accused the reporter who wrote the story of faking his problem. The paper’s public editor later noted[3] that the review had serious flaws though it was done honestly.

But make no mistake, Tesla’s competition is ready to strike. Volkswagen (VLKAY[4]) recently announced that it planned to become the largest electric vehicle seller by 2018. Then there’s the Nissan (NSANY[5]) Leaf, which costs $28,800 before incentives or rebates. Though its range is only 75 miles, the Japanese automaker said that’s sufficient enough to meet the needs of most drivers. Other electric vehicles such as the Toyota (TM[6]) RAV 4 EV and the BMW i3 either carry or are expected to carry sticker prices lower than Tesla.

Musk also is the midst of what will no doubt be a costly legal fight with auto dealers over his plans to bypass them and sell his vehicles directly to the public. The billionaire considers dealers to be a nuisance while the dealers see him as a dangerous threat.

The decline in Tesla’s stock, slight though it may be, represents a rare buying opportunity for investors with an extremely high tolerance for risk. The stock is trading at a forward price-to-earnings multiple over 90, so it’s no bargain. It may be a long time before this becomes a value stock.

Most every successful automaker in history — such as the Dodge brothers to Louis Chevrolet — sold to a larger rival. It’s easy to imagine Musk going down that path, freeing him to develop his hyperloop transportation system and whatever else suits his fancy.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr and at jonathanberr.com.

Endnotes:
  1. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  2. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  3. later noted: http://publiceditor.blogs.nytimes.com/2013/02/18/problems-with-precision-and-judgment-but-not-integrity-in-tesla-test/
  4. VLKAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=VLKAY
  5. NSANY: http://studio-5.financialcontent.com/investplace/quote?Symbol=NSANY
  6. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM

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