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Tesla Motors Pollutes Today for a Greener Tomorrow

Stocks in this article: TSLA

Even if you choose to ignore the intermittency issue, the virtue of green electrons resides in their creation rather than their use. Once green electrons exist it doesn't matter whether they power a Tesla or a toaster. One will be cleaner and the other dirtier.

I've read the reviews of the Tesla Model S and have no doubt that it's a fine automobile. It is not, however, a clean automobile and pretending otherwise is deceptive. Adding renewables to the analysis merely adds another level of pollution to the power grid, a shared resource that is every bit as critical to life in an industrialized society as clean air and water.

I've read several reports over the past two days about the 2,900 new Model S reservations Tesla booked in Q3. The thing they all overlooked, however, is the number of cancellations. Tesla had 11,500 reservations at the end of Q2. It booked 2,900 new reservations in Q3 and delivered 250 cars. It ended the quarter with 13,200 reservations. That number is only possible if 950 existing reservations were canceled during the quarter. A one-in-three cancellation rate in the middle of a high-profile product launch is not an encouraging sign.

I'm willing to give Tesla the benefit of the doubt when it comes to reaching its production goal of 5,000 cars per quarter. But if you start with a reservation base of 13,000, deplete it by 5,000 deliveries per quarter and then replenish it by 1,750 reservations per quarter, the mathematical progression for 2013 will be as follows:

Q1 -- 9,750 reservations

Q2 -- 6,500 reservations

Q3 -- 3,250 reservations

Q4 -- zero reservations

The art of investing is all about balancing upside potential against downside risk; weighing the possible against the likely. Tesla may be a fun stock for traders as the hype cycle runs its course, but with gaping holes in the environmental claims, yawning chasms in the economic claims and serious questions about the commitment of reservation holders, I don't see a reasonable balance between risk and reward.

John Petersen, a lawyer and CPA, has specialized in advising companies on corporate finance and business development for more than 30 years. He writes the deathless prose and dire warnings investors read in offering documents and SEC reports. While Petersen has served as a board member or executive officer for a handful of public companies, the bulk of his work is behind the scenes where precision and a passion for detail are essential.

Petersen's investing style is that of "elephant hunter," and nothing grabs his attention like a "multi-bagger" in the rough. His investing time horizon is two to four years. On the long side, Petersen looks for blood in the streets and stock prices that have been beaten down to unconscionably low levels. On the short side, he seeks out high-profile companies that trade at unsustainable levels while hype-intoxicated executives make the same tactical mistakes he's suffered through with clients. Petersen's sector focus is batteries and efficient transportation because he has almost a decade of experience in the industry, including a three-year stint as board chairman of an R&D-stage battery-technology developer. He's convinced these sectors are emerging investment mega-trends.

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