NEW YORK (TheStreet) -- In this article, I deal with two related issues:
1. Driving the
Model S for the first time, why are theinvestors so surprised that it is so awesome?
expand its product line into TVs -- or cars?
Last Friday saw Tesla's first customer deliveries of its Model S tonon-insiders. The goal is to ramp production from one car per daynow, to 80 cars per day by November, for a total of 5,000 delivered bythe end of the year. Next year, the goal is to deliver at least20,000 cars, probably with some upside from the Model X minivan, whichlaunches at the end of 2013.
The Tesla investment-expectations setup to Friday's event was abarbell's worth of extremes. On the one hand, some people wereextremely optimistic and enthusiastic about the prospects for theModel S. I am clearly one of them.
Yet others were extremely bearish on Tesla. Short interest is said tohave been as high as 24%. The question is why? Why were so manypeople so extremely bearish about the Tesla Model S?
I think I've figured it out. It wasn't that the bears were sopessimistic about Tesla as a company, or specifically the Model S. Itwas that they didn't think electric cars --
electric car -- couldbe successful. And with Tesla being the market's pure play onelectric cars, how could you go wrong in shorting it?
Here is what I found: Most critics of electric cars have never drivenone. They confuse the entirely different issue of political aversionto subsidies and other interventions in the market -- that I agree arealways bad -- with the notion that an electric car can haveoverwhelming positive performance attributes.
Alternatively, they are skeptical of new technology in general, always magnifying a few narrow drawbacks of a new technology, while ignoring the revolutionaryimplications of looking at "the whole forest."
For an almost perfect analogy, I remember the smartphone debate backin 2000 and 2001: Being an early BlackBerry user, I said almost everyonewould want email on their phone, as well as a great keyboard on whichto type. I was told that this might be a market for a few thousandWall Street bankers, lawyers and high government officials, that'sall. The 1%.
When I asked those smartphone bears in 2000 and 2001 if they actually had aBlackBerry, most of them said "No, why would I want to look at myemail all the time?" They had never used one. Three years later,every single smartphone skeptic I knew had one.
Fast forward to today. All you needed to do in order to know that theTesla Model S was going to be an awesome car is to have driven any ofthe
good electric cars already in the market:
1-series Electric or
Yes, I know those are not all the same -- and certainly they aredifferent from the Tesla Model S -- but they are all basically veryimpressive to drive. Most of them cost materially less than theTesla. If you just extrapolate a little, you would easily arrive atthe conclusion that the probability of the Tesla being great to drive,would be extremely high.
Depending on the configuration, the Tesla's got around 400 silent,torque-drenched horses, for pete's sake! And a 17-inch monitor thatmakes Apple look like an ancient Luddite backwater company! And youthought people taking a first test drive in the Tesla wouldn't beimpressed?
But the Tesla bears didn't do their homework. If they had just spentsome time behind the wheel of a Chevrolet Volt, for example, theywould not likely have dared being short Tesla. At 93% customersatisfaction, the Volt received the highest rating by
. Double the price and the Tesla wouldn't somehow make foran impressive test drive? C'mon!
There are several reasons Tesla is a guaranteed success, absent anentirely possible out-of-left-field snafu. Steve Jobs once said thaton an Apple computer screen, the icons needed to be finger-lickinggood. That pretty much describes the Tesla Model S control panel.
Which brings us to Apple.
Ask yourself the question: What value would Apple bring to the TVmarket, actually making television sets? Giants such as Samsung andVizio dominate the TV market today, selling outstanding panels atrazor-thin margins.
You can get your Apple experience on the TV by spending $99 on theApple TV box, simply plugging it into any relatively modern TV. TheTV might cost $700. Apple would surely charge at least $1,200 for itsown equivalent integrated Apple TV. Now, do you want to spend $799 or$1,200 for that Apple TV experience?
Perhaps Apple has some truly innovative aspect to the TV business thatthe current -- or a future -- separate $99 Apple TV box can't somehowaccomplish. Some of these arguments were also speaking against Appleentering the smartphone business in 2007, so you can't be sure.
TVs require fortunes of working capital, as well as store shelf space.They are costly to deliver and install as necessary. Why would Applego through that sort of pain, when a box and an HDMI cord can give theuser seemingly all the benefits anyway?
Now, contrast the pain and low margins of the TV set business withApple acquiring Tesla. What are the ways Apple could add value to thecar, that is difficult to do in an arms-length scenario? I don't havethe space to go through them all in detail in this article, butconsider the following bullet points:
Maps and traffic data
Self-driving cars, (hey, Google!)
Yes, some of these advancements will surely continue to happen even inan arms-length scenario, but does this look any less logical than theTV business?
Consider these signs and arguments for Apple acquiring Tesla instead:
Apple and Tesla are located almost next door to each other
Tesla is opening stores in mostly the same locations as Apple
Tesla is already copying Apple's sales and service model
Tesla's head of sales and ownership experience, George Blankenship,was Apple's head of real estate
Tesla already took Apple's screen/icon look and made it even better
Working capital to fund a TV business could easily exceed acquiringall of Tesla
Smartphones, tablets and cars are all products of profound personalstatement. Everyone knows what they have, and why. They are alllifestyle statements. Television sets? Not so much.
If you are in the market for an $80,000 car today -- and whichengineer at Facebook or Apple today isn't? -- the Tesla Model S is alot more appealing than some Mercedes S-class or BMW 750.
And if youare Apple, with $100 billion burning in the bank, shelling out for a$4 billion market-cap company of iconic importance to the future oftechnology sure sounds a lot more appealing than stamping outlow-margin television sets.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of submitting this article, the author was long AAPL, TSLA and GOOG.
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