Is Tesla Motors a real company? Stephen Mauzy has his doubts.
I’m an income investor. Rarely do I buy an asset without an income component. In my world, investments are valued on the present value of their cash flows.
I prefer present cash flows, but an investment can also be valued based on expected cash flows. After all, Microsoft (NASDAQ: MSFT), Cisco Systems (NASDAQ: CSCO), and Apple Inc. (NASDAQ: AAPL) were formerly non-dividend payers. I expect Google Inc. (NASDAQ: GOOG) and eBay (NASDAQ: EBAY) are future dividend payers.
I can’t say the same for Tesla Motors (NASDAQ: TSLA), because I refuse to view it as a real company. Tesla exists solely because of privilege. Look no further than its prospective Willy-Wonka-esque battery factory.
Earlier this year, Tesla announced it intended to build a $5 billion battery factory somewhere in the Southwest. After the news broke, government operatives responded with a cornucopia of tax incentives and subsidies. A bidding war (as Tesla officials no doubt expected) ensued.
Six months hence we learn that Nevada has won (or lost?) the war. It is working to incorporate the coveted Tesla factory by committing $1.3 billion of other people’s money to Tesla’s coffers over the next 20 years. Republican Gov. Brian Sandoval – he of the putatively free-market party – claimed the “investment” would change Nevada’s economic climate and spur $100 billion in economic benefits over the next 20 years. Which Keynesian economist whispered $100 billion into Gov. Sandoval’s ear, I have no idea. Anyway, it’s a nice, round, impressive number… even if it is totally fabricated.
Of course, most large corporations are competent political entrepreneurs, but here Tesla excels because it is imbued with the advantage of political correctness. Politicians so want Tesla to succeed and they simply want a plausible reason to give Tesla other people’s money.
That’s good news for Tesla, because if it were not for political patronage, the company would be as market-relevant to consumers as a whaling harpoon. It continually loses money ($166 million over the past 12 months at last count).
Tesla appears to follow the confused merchant’s mantra when it comes to selling cars: We lose money on every sale, but we make up for it in volume. And it loses money on every sale despite a $7,500 head start (federal tax credit) on the competition. When you peruse the 10-K (pages 23 through 58 are particularly engaging), you get a sense of the extent the business model is built on government largesse.
To be sure, startups frequently lose money out of the gate, and then for years afterward, before earning a profit. But most are predicated on reality: make it in the market or else. Tesla’s business of the battery-powered car (and even batteries in general) is predicated on a chimera and wishful thinking that’s existed since the late 19th century. Yes, even then people wanted to populate what roads there were with automobiles powered by Nikola Tesla’s new discovery.
The same problems that existed in 1899 persist in 2014: the power plant remains grossly expensive and grossly inefficient. To replace the battery pack on the Model S will run over $30,000. And if the battery pack lasts over 100,000 miles, as Tesla claims, the efficiency of the pack on mile 100,001 will be far inferior to that at mile 1. Over time, all batteries lose their ability to hold a charge.
A brand new Honda 2.4L DOHC I-4 engine, in contrast, gets over 30 miles to the gallon and will easily last to 200,000 miles with little loss of efficiency if properly maintained. To replace (which is highly unlikely) Honda’s clean-burning 185-HP gem with a new unit will cost around $7,000.
Whatever supplants the internal combustion engine, if anything does, is unfounded in last century’s technology. It resides in the future, and it is likely on no one’s radar at the moment. But never mind. As long as investors and politicians continue to believe in unicorns, and have no compunction about funding monuments to unicorns, Tesla Motors will exist and even enrich some investors. The risk is that one day they will stop believing and stop funding, and then the unicorn will disappear.
The New American Prius is a Pick Up Truck
Yes. That’s right. A bigger, better, beefier vehicle is rolling off the assembly line – an American truck that’s actually more efficient than the Toyota Prius. Hey, it can even tow five of them. And it’s not a wimpy hybrid. It’s a 302hp heavy-duty beast. Yet, it only costs around $15 bucks to fill up! And you can travel 800 miles on one tank. That’s why we call it the “American Prius.” ONLY ONE COMPANY has the breakthrough technology for building this truck. And now you can share in their massive profits.