On 10/20/15, the automotive world received an
unexpected jolt when influential Consumer Reports withdrew its recommendation
for Tesla’s Model S electric sport sedan.
This $100,000 luxury vehicle, that previously enjoyed rave reviews from
all quarters, was faulted for a new-car reliability prediction of
“worse-than-average.” Among the maladies
are defects with the drivetrain, power equipment and charging equipment. In addition, owner complaints are reported
concerning body and sunroof squeaks, rattles, leaks, and door handles which
fail to function properly. The news
resulted in a 7% drop in the firm’s common stock on that day.
Tesla Motors, Inc. is a unique company in
many ways. Its controlling investor and
Board Chairman, Elon Musk, took charge in 2004 and transformed the fledgling firm
into a highly regarded corporate powerhouse. In all its years it never generated a profit
from the production and sales of autos.
Nonetheless, it has raised hundreds of millions of dollars from public
stock sales, from the marketing of “Zero Emission Vehicle Credits”—a California
legislative device designed to penalize auto makers for not manufacturing and
marketing electric vehicles—as well as from occasional vehicle sales to well-heeled
green energy enthusiasts. Thanks to the
active support of the federal government, as well as favorable media attention,
and particularly the result of Mr. Musk’s most effective public relations
campaign, its stock price soared over the past five years from its 2010 IPO
opening price of $10 to over $200 per share.
To date Tesla has performed
spectacularly. How a company which never
produced a commercially viable vehicle, nor earned an actual profit, propelled
itself into the automotive forefront is a tribute to inspired promotion. Most certainly government, with its granting
of credits and preferences, is the key to Tesla’s achievement, though it’s uncertain when that assistance may
end. Non-emission vehicles have joined
the list with other government-subsidized programs, and quasi-governmental
operations can drag on unprofitably for years, subject only to political
considerations.
A final thought: To survive, Tesla Motors
must, at some point, market a vehicle which actually generates a profit. It can only exist on PR hype and anti-fossil
obsession for so long. It must produce a
saleable product before the public loses its fascination.
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In addition to this Straight Talk by Al Jacobs, I’m now generating a monthly Financial Newsletter. It normally appears the first of each month and may be viewed on my website. Click onto http://www.onthemoneytrail.net/
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