This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How the New York Hedge Funds Lost Their Shirts on Tesla

Once people get behind the wheel of an electric car and can drive it in a relaxed manner in their everyday routine, they tend to buy them. Driving is believing. That should tell you something. Just look at the owner satisfaction ratings, whether for Tesla, the Chevy Volt or for that matter the iPhone.

3. Underestimating sales projections

Tesla has guided to 21,000 cars this year and 45,000 cars per year "over time." Most Wall Street estimates show some sort of ramp from 21,000 to 45,000 cars over a whole bunch of years.

These are totally wrong.

The 2013 number may not exceed 30,000 cars, but five years from now Tesla would be capable of selling 200,000 to 450,000 cars per year. By 2017, Tesla will have a car that will cost less than $40,000 in inflation-adjusted dollars.

In the U.S., 16 million cars are sold every year, and 80 million worldwide. If we were talking about smartphones you should see over 50% of these being the new technology well within a decade.

By 2018, half of all drivers will have experienced driving an electric car. Almost all of them will want to buy one. Tesla will, in turn, get some share of these. At 1% of the worldwide car market it would be 800,000 cars per year. That's the approximate level Tesla should end up longer-term.

How many Wall Street analyst models have Tesla selling 800,000 cars per year? I haven't seen one yet.

Here is one thought experiment: Tesla says it can sell 15,000 cars per year in the U.S. Actually, it is off by a fair bit there, too. Tesla can sell those 15,000 cars per year in the 80-mile corridor between San Francisco and San Jose, Calif. At the current sales rate, it is probably doing it already.

So what could go wrong with my ultra-bull Tesla thesis?

There are obviously all sorts of execution risks, all the way to a California earthquake. However, the big one is simple: competition. Every other car maker will be launching very attractive electric cars between 2013 and 2017.

Contrary to rumor, the big car makers are not too stupid. They are watching, and some of them are feeling the pain from Tesla's competitive heat in Silicon Valley sales.

The big car makers may have been off to a slow start, but that will not last forever. In a few short years -- starting with BMW and GM/Cadillac -- Tesla will eventually end up with significant premium electric car competition. One decade from now, at least 50% of all new cars sold will be electric -- possibly 70%. Almost per definition, the other car makers -- from Ford to VW to Toyota and all the rest -- will have numerous electric cars on the road by then, starting under $20,000.

Here is the bottom line: If you are short Tesla stock and you have not spent any meaningful time driving an electric car (Tesla or otherwise), and you based your observations on electric car adoption outside Silicon Valley, and you think that electric cars in general aren't going to dominate within the decade -- I'm sorry, but then you're an idiot.

Full disclosure: I have spent over 25,000 miles driving every single electric car in the market -- I think -- except for the Honda (HMC). Based on this, I feel like I'm qualified to invest in Apple stock based on being the first guy in line to have bought the iPhone on June 29, 2007.

At the time of publication the author was long AAPL..

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TSLA $226.72 -2.26%
AAPL $109.50 -1.16%
FB $92.47 0.08%
GOOG $639.16 -0.50%
YHOO $32.37 1.57%


Chart of I:DJI
DOW 17,050.75 +138.46 0.82%
S&P 500 1,995.83 +15.91 0.80%
NASDAQ 4,810.7880 +19.6360 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs