Tesla Triumphs but Questions Remain

NEW YORK (TheStreet) -- Let's start with the two main unanswered questions regarding Tesla's near-term future: Demand and profitability. These are two questions Tesla has got to answer on its quarterly earnings call this week.

1. Demand: I walked into a Tesla store this weekend and asked several times how long the wait is for a car, for someone ordering a Tesla right now. Iwas told 30 days, which is shockingly quick, compared to what we weretold only one to two months ago.

There are only three things you have to stick to if you want delivery in 30 days:

A. the battery must be the 60 or 85 kWh version -- not the 40 kWh;

B. you must order the $1,500 air suspension option;

C. you can't have the new red color.

Basically, those three options (40 kWh battery, regular non-air suspensionand the new red color) go into production in April.

There are multiple ways to interpret this 30-day lead time. Let'sstart with the worrisome interpretation.

It is said that Tesla had over 19,000 reservations (deposits) for theModel S in the US. Approximately 5,000 have been delivered by now.That yields us 14,000 net.

Furthermore, the consensus is that Tesla is now building 400 cars perweek. That's approximately 1,600 cars per month, 5,000 cars perquarter and 20,000 cars per year.

With 14,000 U.S. net reservations for the Model S remaining, how can thewait for the car be only 30 days? They're only building 1,600 carsper month. The wait should be almost 11 months (14,000 divided by1,600).

Clearly some of the cars are red, 40 kWh battery and don't have theair suspension -- but 90% of the order stock? Seriously? That seemslike a lot. Seems very unlikely.

A Tesla bear would say that thousands of people must have asked fortheir deposits back. Basically, the backlog has been significantlyreduced. If true, this would be a horrendous bearish sign, and itcould cause the stock to collapse upon the earnings report.

Another explanation would be that those who have deposits have chosento "defer" their deliveries until some time in the future, even thoughthey could have taken delivery right now in February. This may betrue to some extent, but it would be surprising if it explained thewhole gap.

Some would argue that those who are placing orders today are "cuttingin line" against the will of those with earlier deposits. I find thisunlikely. Word of this would spread like a prairie fire. Peoplewould feel cheated and become upset. I can't imagine Tesla doing thisother than in carefully selected special cases for good reason.

The optimist has a different interpretation: Tesla has increasedproduction from the recent consensus of 400 cars per week. Mostpeople reported that the 400 per week goal was reached some time inDecember or January. Well, what if it simply continued to rise?

For a production increase to explain the whole multi-thousand gap insuch a short time-frame though, production must have gone up almost10-fold, not just a somewhat half-realistic doubling from 400 cars perweek to 800 or whatever in the last month or so.

Bottom line on this point: There is at least some chance that thisdevelopment is not a good sign for Tesla's order book. I really don'tknow, and the numbers appear somewhat contradictory and inconclusive.There are multiple possibilities.

2. Profitability: This is a much more straightforward point. If I recall Elon Musk's statement from last June's shareholder meeting accurately, he saidTesla's breakeven point is 8,000 cars per year. That's 2,000 cars per quarter.

Well, if this is true, Tesla would have been profitable already in theDecember 2012 quarter, and would be profitable every single quarter in2013. With a total backlog -- Model S domestic, Model S internationaland Model X -- of approximately 25,000 cars already, Tesla should haveno problem delivering 20,000 in 2013. Model X starts in 2014.

If Tesla breaks even at 8,000 cars, selling 20,000 would then makeTesla extremely profitable, no? If not, one would think someone's gotsome 'splaining to do.

The New York Times Dispute

My take on the well-publicized failure by the New York Times to drive thecar from supercharger to supercharger in the DC-Boston corridor isthis: Seeing as everyone else -- from CNN to regular consumers --has managed to accomplish this task, the NYT journalist looksterrible with his failure.

What makes this drive so relatively difficult right now is that thereare too few superchargers deployed, and they are too far from eachother. If you are doing this drive now, you are facing odds that areonly moderately better than Jimmy Doolittle on April 18, 1942. Toaccomplish the task, you have to use common sense in terms of chargingthe car, so that you don't fail to fill up the car to the max.

The NYT writer blames his failure to fill up the car's battery with afull charge on advice he was given by Tesla. The real question isthis: If he indeed received this bad advice, why did he follow it?Driving an electric car to a place near the range limit requiresknowledge of mathematics, basic physics, logic and common sense.

This includes:

1. charge the car as much and as often as possible;

2. drive smoothly and not too much above the speed limit;

3. don't sit and idle with the heat on, thinking it will help.

If Jimmy Doolittle had piloted his plane in the same manner the NYT treated the Tesla Model S this Winter, he would never have madeit to Tokyo, let alone China.

In the end, Tesla managed to turn a piece of crummy publicity into aPR triumph. All it took was for other people -- CNN as well asregular owner-volunteers -- to re-create the NYT journey, andachieve a successful result.

There are many reasons Tesla is succeeding as a company -- althoughthat does not constitute a prediction for the stock. One of them isproduct positioning. There simply isn't another car in the marketthat's anything like it.

The $80K (and up) Tesla Model S has a EPA-certified average range of265 miles. The only other all-electric car that beats 100 miles isthe $50K Toyota RAV4 EV, which uses the Tesla drivetrain with asmaller battery. All other cars are below 100 miles, with thebest-seller being Nissan LEAF at 75 miles.

Yes, I know: If you want the electric car experience for only thefirst 38 miles, and being able to go 370 miles in total, the GM's ( GM) ChevroletVolt (and soon Cadillac ELR) is for you. And while that's a car thatI personally prefer, considering that it costs half or less than halfof the Tesla, it's not the same. It doesn't have the sameacceleration, suspension, interior space, etc.

Tesla has loads of patents, a new kind of sales experience, and ofcourse a car that is totally unique in its market positioning. Thisshould make for a successful company.

Considering the large shortinterest, I'm modestly optimistic on the stock as well, but we shallsee. In either case, not bad for a company that went from zero to anamazing 100% market share in record time.

At the time of submitting this article, the author was long TSLA.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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