Tesla: The Time Has Come

NEW YORK (TheStreet) -- We are now approximately 90 days or less away from the big launch ofthe Tesla (TSLA) Model S. This is no secret -- Tesla has saidfor a long time it expects to deliver its first Model S car byJuly, 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-pictureview of how the world will view not only Tesla, but also the entireelectric car market as a whole, once the Model S gets into the handsof consumers.

The first car was the 1886 Mercedes-Benz, but it wasn't really until1908 when the Ford Model T hit the road that the automobile market began toscale. That's the analogy you want to consider now with theimportance 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, startingat $57,400 before tax adjustments. It will hit the U.S. roads over 18months after the Nissan LEAF, which cost just under $35,000 and hasalready 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 NissanLEAF or any other practical all-electric car to date. The Nissan isEPA-certified at 73 miles on average. Tesla claims 160 miles for thebase version of the Model S. Let's see what the EPA certifies, nolater than July this year. My hunch is that the EPA-certified numberwill 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 ofthe Model S. Each step up is $10,000 more. Of course, there are alsoall sorts of other options that will cost extra, including a morepowerful motor, sunroof, etc. On the Tesla Web site, I was able toconfigure 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 mostpeople. While 73 miles is more than plenty for many people most ofthe time, most people need or want a car to be able to handleunforeseen situations. Sometimes you just need to go longer than youhad planned for your regular commute that day, and perhaps you don'thave time or ability to charge during the day.

If 73 miles don't cut it, are you saying that 160 miles or 230 milesdo? In a word, yes. Or at least: Yes, I think so -- for many, manypeople. 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 carmarket -- 1% of the U.S. car market is 150,000 units, and Tesla isgunning for worldwide sales of 20,000 units with the Model S, plusanother 10,000 to 15,000 cars for the 2014 Model X. Totally achievable, inother words.

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

But ... the Nissan LEAF is not likely the car in which most people wantto be seen most of the time. The exterior is a bit weird, and theinterior is not luxurious. Remember, the buyers of these cars aremost 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 competeswith Mercedes S550, BMW 750 and the like. It has cargo space vastlyexceeding any other sedan in the market today. It has superiortelematics compared to any other car too -- especially important amongSilicon Valley engineers.

Built-In Market

I keep harping on Silicon Valley engineers because it is possible thatTesla could meet its entire sales plan for the Model S and X strictlyby selling them to the employees of its corporate neighbors. This isa much under-appreciated attribute of Tesla's business plan. Locatedin Palo Alto, it is the first new U.S. automobile producer to hit thiskind 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 performancecurve, and with a telematics system vastly more advanced than anyother car to date, it is not only located in Silicon Valley, but alsoseemingly perfectly tailor-made for it.

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

Assuming no cancellations of the deposits, Tesla is sold out in termsof production capacity until April or so -- of 2013. Anotherimportant aspect to consider at this stage is that with only 90 daysor less until the first customer delivery, no automotive journalisthas yet been allowed to report on a test drive of the Model S. Teslahas provided brief test rides, but no driving opportunity yet. Thismeans that there is no significant "performance hype" being reportedin the media yet.

Yet.

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

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

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

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

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

Against the Competition

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

1. Chevrolet Volt: The Volt is a slightly smaller car, strictly forfour people. It also has an on-board generator, so it can be drivencompletely without range anxiety. It fits less luggage, and while itstelematics are probably second-best, it will not be as spectacular asthe Tesla Model S. The Volt is $44,575 fully loaded, before taxadjustments, and has received the highest customer satisfaction ratingof any car in the market today.

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

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

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

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