Electric Cars-The Future or a Distraction
It's been hot in Vermont lately, and the heat wave has many turning to their air conditioners for comfort. Not me. I like the fresh air of the outdoors - and took to the Burlington waterfront this past weekend to enjoy the sun and watch the happenings in the park by the water.
I noticed a few people riding electric bikes. They look just like normal bikes, except for a small engine mostly hidden in the frame. It gives them extra oomph when they need it.
So that's how Lance Armstrong does it.
Watching these individuals on electric 'bikes' got me thinking about our country's electric future. After the government bail-out of the auto industry, every manufacturer was touting their zippy electric cars as a way to revolutionize the market-place and wean us off of foreign oil.
The looming question is: how exactly do we transition to a world where electric powered vehicles are the norm, and the power sources needed to generate the electricity are cleaner than the status quo?
That's a heavy question, fraught with pitfalls that frankly, I'm going to steer clear of this morning. Pardon the pun but I'm more interested in talking about electric cars right now.
***Tesla Motors is perhaps the most well-known of the electric car pure-plays. The California-based firm, named after the enigmatic inventor Nikola Tesla, has targeted the high-end market for electric vehicles. At a price tag of over $100,000 for the Roadster model, if a green minded celebrity or CEO needs a car, Tesla is there.
Don't get me wrong, Tesla's pricey Roadster is a marvel of engineering. Between its 200+mile single charge range, and a motor that'll take you 0-60 mph in under 4 seconds, Tesla Motors has seriously changed our perception of electric cars. But it's purely a discretionary item - and isn't designed for the masses.
To widen the band of potential customers, the fledgling company will be introducing a sedan prototype for more cost-conscious Americans ($50,000+ without the federal tax credit).
If this is still out of your price range, but you love the company, you may be better off simply buying a part of the company.
That's right, Tesla motors is going public today. Shares will trade on the NASDAQ exchange under the ticker: TSLA. The company wanted to raise around $180 million by selling 11.1 million shares for $14 to $16 dollars each. But as of this morning, it appears the company will pull in closer to $230 million with shares priced at $17 each.
What do you get with your $17 dollars? Tesla's filing is chockfull of caveats, including the firm's commitments to the government, a deal with Toyota, and an unfavorable short-term outlook. Like most green energy firms, you're paying for potential - not profit. In fact, the company has never turned a profit, and isn't expected to for a good long while.
That said, investors should be happy with the company's deal with the Department of Energy, which requires the company to put $42 million of the IPO proceeds toward its factory in Fremont, California. At least there will be production, not just a cash-out for current executives.
***Whether or not you like the cars (I happen to think they are pretty darn cool) quite a few people see Tesla as one of the top auto companies in the next generation of automobiles. The company is making technological advancements worthy of its namesake. If electric cars move from oddity to mainstay, the upside for this cutting-edge firm is huge.
The question then becomes, is there potential? Will electric cars play a role in our future? What do you think? Let me know by sending an email to: editorial@smallcapinvestor.com.
Regardless of the current market opportunity (be it large or small), companies like Ford and Toyota are pushing ahead, setting up large charging station networks across the U.S. The infrastructure for traditional internal combustion engine automobiles is vast, and the idea of quickly replicating such a network for electric cars is daunting. Whether or not this latest push for electric infrastructure will give Americans the mobility they crave is a question central to the electric car debate.
***Tesla Motors is a glamour stock that doesn't seem the best way to bet on the electric car. Once Tesla goes public, it will certainly be a small-cap company, but not the kind I want to invest in right now. By the time the firm's "cheap" option (if you consider $50k cheap) roles out, the Chevy Volt and Nissan Leaf will already have been on the market for two years.
Our own Resource Prospector Kevin McElroy is particularly bearish on clean energy companies. Right now he's filling in his subscribers on how to short green energy. He notes that the sector is completely reliant on government subsidies, and the U.S. government is already mired in debt. Traditional energy sources like coal and oil are still cheap as global demand remains weak, making alternative energies and technologies much less attractive.
***But alternative-energy stocks trade on sentiment and future opportunity, and in the wake of BP's oil spill, people want an alternative. In this case, sentiment reflects confidence on continuing to support alternative energy companies through subsidies. Subsidies mean cash flow, and every analyst knows that a company's stock price is fundamentally driven by the promise of future cash flows. The timing of Tesla's IPO, in the recent wake of the BP disaster, could help the new share's trade higher on sentiment alone.
Sectors like agriculture, railroads and oil have been the beneficiaries of government subsidies for decades. Strong political will could ensure that clean energy fuels and cars receive the same support. Denmark, along with a host of other nations, has shown that it can be done.
I'm hopeful. But at the same time, these types of stocks are incredibly speculative. The best way to invest is to invest in best of breed companies. That decreases the risk while still providing exposure to some incredibly interesting sectors and technologies.
I'll pass on Tesla stock today - but that doesn't mean I'd pass on a ride in one of their cars. If you have one, and you'd like to go for a spin, email me at: editorial@smallcapinvestor.com.
