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Getting Tesla Wrong

Stocks in this article: TSLA GM

2. Battery size mix

Tesla said that less than 10% of orders are for the smallest battery, the 40 kWh. It also said that more than 50% of orders are for the largest battery, the 85 kWh. Somewhere in-between are sales for the 60 kWh battery.

Think about this for a second. The pundit-sphere is filled with arguments that Tesla makes a product that's too expensive, and that the pressure is for the car to become cheaper.

The evidence shows otherwise. The overwhelming percentage of sales is for versions starting at more than $80,000, with recent averages near $100,000. The demand for Teslas below the $70,000 mark is basically tiny.

Market Segmentation and Focus

This leads us to a critical mistake made by almost all Tesla analysts. The critical flaw is that they tend of think in one of the two following terms: "Tesla is a play on electric cars" and "The car must be good enough for most or all people."

First things first: Tesla is NOT a play on electric cars. Tesla IS a play on "extreme performance cars that fit 5 adults and gigantic luggage."

There are plenty of different kinds of electric cars in the market. Not all of them have done as well as Tesla, and these discrepancies will be a lot clearer in 2013.

To believe otherwise is to claim that a Porsche 911 is a bet on the car market. A Porsche 911 is a lifestyle purchase, alternatively an extreme performance car. It's a toy, a mid-life crisis pill. A Porsche 911 is rarely taken on a road trip. How many people do you know who has taken their 911 on a 200-plus mile trip, ever?

Likewise, the Tesla is a lifestyle purchase. What kind of lifestyle? Who cares? Different people have different motives. Some people are just techies. Others want a silent car. Many want a uniquely fast car. Others want one-pedal driving. Misguided souls think they are saving a lethal polar bear.

The point is this: There are millions of people around the world who are on their third or fourth Mercedes S550 or BMW 750. They're up for renewal, and they're bored. Another three years, another same car AGAIN?

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