Tesla: The Time Has Come

NEW YORK ( TheStreet) -- We are now approximately 90 days or less away from the big launch of the Tesla ( TSLA) Model S. This is no secret -- Tesla has said for a long time it expects to deliver its first Model S car by July, and everything seems to have progressed exactly on track.

It is easy to get lost in the weeds in terms of the importance of the Tesla Model S being delivered to customers. There is a very important big-picture view of how the world will view not only Tesla, but also the entire electric car market as a whole, once the Model S gets into the hands of consumers.

The first car was the 1886 Mercedes-Benz, but it wasn't really until 1908 when the Ford Model T hit the road that the automobile market began to scale. That's the analogy you want to consider now with the importance of the Tesla Model S, in the arena of electric cars.

Unlike the Ford Model T, the Tesla Model S is a high-end car, starting at $57,400 before tax adjustments. It will hit the U.S. roads over 18 months after the Nissan LEAF, which cost just under $35,000 and has already sold in considerable quantities (over 10,000).

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So the Tesla Model S is neither the first comfortable electric car, nor the cheapest. So what's the point?

Model S Overview

The Tesla Model S will give you significantly more range than a Nissan LEAF or any other practical all-electric car to date. The Nissan is EPA-certified at 73 miles on average. Tesla claims 160 miles for the base version of the Model S. Let's see what the EPA certifies, no later than July this year. My hunch is that the EPA-certified number will be less than 160 miles, but that's just my hunch.

Tesla will also sell you an alleged 230-mile and a 300-mile version of the Model S. Each step up is $10,000 more. Of course, there are also all sorts of other options that will cost extra, including a more powerful motor, sunroof, etc. On the Tesla Web site, I was able to configure a model with seemingly every single option for $108,400, before tax adjustments.

Here is the point: 73 miles just isn't enough for comfort for most people. While 73 miles is more than plenty for many people most of the time, most people need or want a car to be able to handle unforeseen situations. Sometimes you just need to go longer than you had planned for your regular commute that day, and perhaps you don't have time or ability to charge during the day.

If 73 miles don't cut it, are you saying that 160 miles or 230 miles do? In a word, yes. Or at least: Yes, I think so -- for many, many people. Not all, perhaps not even a majority -- but for many people. The bar of success for Tesla is not if it can get 50% of the car market -- 1% of the U.S. car market is 150,000 units, and Tesla is gunning for worldwide sales of 20,000 units with the Model S, plus another 10,000 to 15,000 cars for the 2014 Model X. Totally achievable, in other words.

It is true that the Nissan LEAF has become a hit among Silicon Valley executives and engineers, mostly as a second, third, fourth or fifth car in the household. If you have a set commute, or if you can charge at work (which is common at Google, Apple, Facebook and so forth), you now have a very functional all-electric car that may last longer than your grandchildren will walk this Earth. All you have to do is to inflate your tires, and eventually change those tires, as well as the brakes. There just isn't much maintenance beyond that.

But ... the Nissan LEAF is not likely the car in which most people want to be seen most of the time. The exterior is a bit weird, and the interior is not luxurious. Remember, the buyers of these cars are most likely those who would have spent $50,000 to $100,000 or more on a premium car. The LEAF is a fairly ordinary compact-to-almost mid-size car, that happens to be all-electric.

The Tesla Model S changes all of that. It is a sedan that competes with Mercedes S550, BMW 750 and the like. It has cargo space vastly exceeding any other sedan in the market today. It has superior telematics compared to any other car too -- especially important among Silicon Valley engineers.

Built-In Market

I keep harping on Silicon Valley engineers because it is possible that Tesla could meet its entire sales plan for the Model S and X strictly by selling them to the employees of its corporate neighbors. This is a much under-appreciated attribute of Tesla's business plan. Located in Palo Alto, it is the first new U.S. automobile producer to hit this kind of scale in many decades. The manufacturing will also be 100% local to Silicon Valley.

This being an all-electric car at the highest-end of the performance curve, and with a telematics system vastly more advanced than any other car to date, it is not only located in Silicon Valley, but also seemingly perfectly tailor-made for it.

You just wait: Before 2012 is over, almost every single prospective buyer of a premium performance car located in Silicon Valley will be getting in line for the Tesla Model S. Tesla already has close to 10,000 deposits -- admittedly fully refundable -- from around the world.

Assuming no cancellations of the deposits, Tesla is sold out in terms of production capacity until April or so -- of 2013. Another important aspect to consider at this stage is that with only 90 days or less until the first customer delivery, no automotive journalist has yet been allowed to report on a test drive of the Model S. Tesla has provided brief test rides, but no driving opportunity yet. This means that there is no significant "performance hype" being reported in the media yet.

Yet.

But when that happens -- journalists reporting on actually driving this first-in-the-world kind of car after driving it for a few days or more -- in combination with customer deliveries taking place and testimonials forthcoming, you can imagine how the Tesla Model S will dramatically change the automotive world as we have known it for our entire lifetimes, and the same for our parents and grandparents. This moment is on track to happen by the end of July this year.

What can go wrong? I see two potential perils that a shareholder must worry about:

1. Crash testing. Tesla has been adamant about its expectation that the Model S will receive a five-star crash rating. Certainly the company has spent over three years planning for it. That said, who knows what the real-world test will yield. In the -- presumably extremely unlikely -- scenario that Tesla has miscalculated, a worst-case scenario could mean going back to the drawing board with the car's design, setting the company back perhaps three years. Looking at the shape and placement of the battery, if something does goes wrong, it could go wrong very badly. This would be catastrophic to the stock.

2. General quality issues. Building a car is more than the powertrain. The established car companies have had in some cases more than a century of experience in endurance testing. Tesla must not get only the powertrain and its revolutionary telematics system right -- it must also get all the other "boring" details right in terms of building a car that will exude quality from Day 1 to . . . many decades from now.

Fortunately, this second risk is less severe in terms of what would happen in the event of a failure, but it is nevertheless a source of worry. The press will be watching the Model S real-world performance with a hawk eye, and issues that would get no attention if they happened in a Ford, VW or Honda, will be all over the news if discovered in a Tesla. Unfair, but true.

Against the Competition

How does the Tesla Model S compare against the two leading extended-range electric cars that are currently on the market?

1. Chevrolet Volt: The Volt is a slightly smaller car, strictly for four people. It also has an on-board generator, so it can be driven completely without range anxiety. It fits less luggage, and while its telematics are probably second-best, it will not be as spectacular as the Tesla Model S. The Volt is $44,575 fully loaded, before tax adjustments, and has received the highest customer satisfaction rating of any car in the market today.

2. Fisker Karma: The Fisker has an on-board generator, just like the Volt. However, it has placed the electric motors at the rear of the car, significantly reducing the trunk space. The two rear-seat bucket seats fit only smaller people, compared to the Volt.

The Fisker Karma is very heavy, but is also in the eyes of many people the best-looking car in the market today -- regardless of price. Speaking of price, the Fisker Karma costs about as much as a fully loaded Tesla Model S, starting at just over $100,000 -- but the options list is relatively short in comparison. The Karma competes more with extreme sports cars such as Aston Martin, rather than practical luxury sedans, mostly as a result of its tiny trunk space.

What's the bottom line on the Tesla Model S? It has a dramatic set of unique properties -- large sedan, huge luggage space and with record all-electric range -- that provide for a break-through position in the market. In addition, the company's location in Silicon Valley makes for a most interesting dynamic with a strong "home market" inside both the state and the country. Assuming Tesla passes the crash tests and manages to avoid any other quality issues, it's got an epic winner on its hands.