Tesla Stock: Here’s Why the Tesla Motors, Inc. Bubble Will Collapse

Tesla StockTesla Motors, Inc. Could Have a Head-On Collision with Reality

The Model S from Tesla Motors, Inc. (NASDAQ:TSLA) turns many heads. Potential car buyers would be more than willing to pull out over $100,000 for a fully loaded model. For that price, the customer gets the “small” battery with a capacity of 60 kWh, providing a range of 220 miles, depending on the manufacturer. This cannot be good for Tesla stock, much less Tesla stockholders.

By choosing the 85kWh battery for about $11,000, the proud owner secures an additional 70 miles of range. Still, the car comes with a Nappa leather interior and controlled air suspension. Nevertheless, many would-be buyers, even those who can afford the sticker price, will soon be forced to concede that the electric car, stylish or not, will not be a practical solution to personal transportation for at least the next 10-15 years.

Tesla Stock is Mostly Hot Air

Elon Musk famously claimed that Tesla Motors would not be making a profit until 2020. In other words, it will survive on debts until then. The goodwill of do-gooders and those who have bought TSLA stock are taking the majority of the risk.

The Tesla stock price is simply too high. Media hype has managed to lure Wall Street into keeping the company plugged in thanks to credit facilities. It also helps that Goldman Sachs is heavily invested in the company. John Lovallo, an analyst at the Bank of America, worries that should Tesla Motors demand collapse, Tesla stock will suffer a shock, with a collapse following in short order. (Source: Wall Street’s biggest Tesla bear is not impressed with the latest number that has Tesla investors so pumped up, Business Insider, April 6, 2015.)

Tesla_Motors_Inc_Chart

Chart courtesy of www.StockCharts.com

For most people, the Model S still has a high purchase price, even with all the current and promised improvements. More importantly, the range is still too low and unpredictable. Charge times remain unsustainable for daily use. In other words, a Tesla driver should be prepared to have at least another gas or diesel-powered vehicle in the driveway if he or she cares about the all-American freedom to go anywhere, anytime.

However, as a fan of sporty sounding aluminum internal combustion engines, I will humor Tesla fanatics. Let’s assume that tomorrow or this week, someone comes up with the perfect battery; one that recharges in the same amount of time it takes to fill up a 20-gallon tank. Let’s also pretend that this battery weighs half the amount of current ones. While we’re on the subject of wishes, let’s also add the condition that such a battery can sustain frequent charge cycles and that it boasts an energy density per volume and weight of at least three times the current batteries.

Tesla Cars Are Simply Not Practical

Finally, to address a most practical problem of everyday driving; to truly make a Tesla as practical as any other luxury sedan, as a driver I should be able to recharge anywhere. This includes my garage, my driveway, the curb on the side street, the public parking lot, and most certainly at the service station along the highway on the way back from the cottage. I would expect to see these charging stations everywhere.

Now, even if that wishlist were somehow to be addressed, and many have cited such complaints before, let us imagine what would happen if Tesla sales were to increase to levels comparable to mainstream luxury cars. For argument’s sake, if there were 5,000 Teslas being charged somewhere in your city, most likely at night in a garage, that translates to 5,000 huge 70-80 kilowatt battery packs, perhaps running on a quick model.

Project those figures countrywide. Would it be possible? How much power would need to be generated to satisfy this kind of demand? It would not be possible with the grid level available today and with the low tolerance for large public investments in infrastructure. Does anyone remember the two to three day blackout in the northeastern United States and southern Canada in 2003? There were no Tesla cars then.

In other words, Tesla’s value proposition, despite the high price of its stock, is not impossible. But it is not quite as practical as Elon Musk, the company’s cartoonesque founder, would like us to believe. Investments of billions of dollars are needed over a period of several years to bring the infrastructure in line with Tesla pretenses—and that’s just to shift 20% of the vehicles to electric power.

Power stations and networks themselves require major upgrades to address the exponential surge of demand. When the electric car proponents bring up the argument that a gasoline distribution network also required years to build, they forget that gasoline was exclusive to vehicles. It did not have to share its power with homes, factories, and cities.

Even a single city block with a few dozen Tesla cars rapid-charging at the same time would require new power cables to handle the kind of energy that would be necessary—the kind now being used by energy-intensive industries.

So, for the next decade, Tesla sales will remain at current levels. In the most optimistic scenario, prospective buyers, current owners, and TSLA shareholders may soon discover that the electric car is a gadget to be used in certain specific situations.

Indeed, the best that Tesla stockholders can hope for is that the Model S finds use as a taxi or an Uber, where drivers can simply replace vehicles between charges.

The Tesla Stock Run is Built on Hype

The Tesla Model S, which was supposed to revolutionize the automobile, in the best of cases, could serve as a basis for its evolution. This means it will be subjected to competition and not necessarily of the same [electric] variety. Before we decide to hand over the future of transportation to Elon Musk, there are alternative solutions to consider that Tesla shareholders should become familiar with.

Elon Musk is appearing everywhere from late night talk shows to international policy events. The founder of Tesla Motors is undeniably the king of buzz. According to many gushing media outlets, he is poised to revolutionize the automobile with his company’s Model S. Nevertheless, we must not confuse a critical success that is confined primarily to California with a global automotive market totaling over 60 million vehicles sold in 2014.

Even by selling several thousand Model S’s a month, Tesla counts very little. Indeed, it is a testament to the strength of Musk’s image and the company’s marketing that it draws so many debates and inquiries. In fact, in the global automotive context, Tesla is a mere insect making its path among giants. Musk’s fans would probably prefer the term “dinosaurs.”

Yet dinosaurs, unlike the Tesla, do not need to wait 29 hours on a domestic socket for charging to be ready for use! This problem will not be solved in a few well-placed tweets or public announcements. Even the optional fancier domestic charger, requiring installation of a sturdy wall charger, has reduced this time to about five hours. The installation alone can cost up to several thousand dollars—in addition to the inevitably higher electricity bills.

The Tesla Model S becomes a paradox on wheels: it can cost as much as higher-end Mercedes and BMW models but is much less able to be used in the streets. Tesla Motors shareholders, and the boy-band-like fanaticism they ooze, claim it is a “zero emissions” luxury car and that it “saves the planet.” They forget that electricity does not fall from the sky.

The Tesla S remains a toy for millionaires who park it prominently and smugly in front of their garages to broadcast their progressive pretenses—even as they might object to minimum wage increases. Therefore, Tesla’s electric car revolution remains a distant pipe dream.

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