TSLA Stock: Is Tesla Motors, Inc. the Betamax of Automakers?

Tesla MotorsHonda’s Hydrogen Fuel Cell is One More Blow for Tesla Stockholders

Tesla Motors, Inc. (NASDAQ:TSLA) is in a tough spot now. TSLA stockholders should be worried.

Today, more and more manufacturers are choosing to roll out hydrogen cars instead of battery-powered ones.This comes after Toyota Motor Corporation (ADR) (NYSE:TM) beat the Tesla Model S with a 312 to 270 mile range using hydrogen fuel cells. Honda Motor Co., Ltd. (ADR) (NYSE:HMC) has also chosen to take the hydrogen fuel cell route to the future of personal motoring by introducing the Honda Clarity Fuel Cell car at the Tokyo Motor Show today.

The Honda Clarity’s figures alone should make Tesla stockholders be afraid: 450 mile range, three minutes to refuel, no special charger needed. A Tesla Model S needs 60 minutes using a supercharger or several hours (eight or nine at least) if you use a regular household outlet.

What Does This Mean for Tesla Stock?

The new Clarity Fuel Cell is not a special prototype to introduce new technology; it is a production-ready car. It will make its debut in Japan in spring 2016, after which it will proceed to Europe and North America.

The new hydrogen car will replace the FCX Clarity (the “pioneer” in Honda’s fuel cell development), taking on the Mirai, its fuel-cell-powered competitor from Toyota. The new Honda Clarity fuel cell will be produced in Takanezawa.

Tesla owners or shareholders might point out the Honda is small and not as comfortable or practical. To this, the Honda Clarity buyers can point out the rather generous dimensions-about the size of Tesla Model S. Admittedly, the Tesla is a more handsome car, but the Honda Clarity’s design responds to specific needs for efficiency with a special focus on interior space. (Source: “Honda’s New Hydrogen-Powered Vehicle Feels More like a Real Car,” Forbes, Oct 27, 2015.)

Honda engineers rationalized the space used for the powertrain components, optimizing the size of the fuel cells, which store electrical energy in lithium-ion batteries. The electric 177hp motor is smaller than the one in the previous FCX Clarity to obtain an overall size comparable to that of a traditional V6 engine, easily allowing for five adults to travel comfortably.

The new Honda Clarity fuel cell offers the possibility to choose between two driving modes: “Normal,” to obtain a favorable balance between fuel economy and performance, and “Sport,” providing more responsive acceleration.

Unlike the batteries that power Tesla Motors’ cars, fuel cells offer all the environmental benefits of an electric car without the range anxiety. In a fuel cell, the operative principle is reverse electrolysis. Hydrogen and air flow around two electrolytic plates, which act as anodes and cathodes, separated by a polymer membrane.

The hydrogen and oxygen particles on the plates are chemically attracted, while the membrane prevents them from uniting. The buildup of energy, or potential, becomes the electricity or power that then feeds the electric motors. (Source: “Hydrogen fuel cell vs. battery-electric cars: Which is greener?” GOEVGO, last accessed October 28, 2015.)  

Honda is betting that fuel cells are the future, not batteries. Honda Motor Co. stock should gain from the fact that its main competitors such as Toyota, Volkswagen AG (OTC:VLKAY), General Motors Company (NYSE:GM), Ford Motor Co. (NYSE:F) and even premium automakers like BMW, have chosen fuel cells rather than batteries. Fuel cells can be adapted to all kinds of vehicles; from cars to trucks.

Realistically, battery technology can work only on passenger cars. For a truck, hauling thousands of pounds of cargo on long highway trips, it would need enough batteries to occupy most of its space, compromising cargo capability–not to mention the charging time and stops. Fuel cells, once a suitable hydrogen network is established, can be recharged as conveniently and quickly as a diesel tank.

It’s true that Tesla has an advantage for now. There are only 12 hydrogen charging stations in the U.S. (two in California) while Tesla owners can use one of 200 supercharging stations. Moreover, Musk’s cars can be charged at home. However, Tesla Motors, which has made a valuable contribution and should be praised for making electric-powered cars accessible and even desirable for some, has been in the car business for less than a decade.

Tesla’s flamboyant CEO, Elon Musk has stretched his focus to other projects, one of which involves space exploration through the Space X venture, which is purporting to win a contract from NASA to launch satellites on its way to sending a manned mission to Mars. Honda, Toyota, BMW, Daimler/Mercedes Benz (which also prefers fuel cells) have been in the car business for decades–over a hundred years in fact. These companies understand the market far better than a new entrant, even if that entrant has revolutionary technology.

The battle is not unlike Betamax vs. VHS in the late 1970s and 1980s with home video entertainment. Hyundai, which sells cars all over the world, serving markets where personal car ownership is growing fastest (i.e. Africa and certain parts of Asia) has also bet on hydrogen fuel cell technology.

Tesla Motors shareholders should note that Tesla’s much-hyped success, a mostly California-based phenomenon, does not equate with the reality of the global automotive market, which counts more than 65 million vehicle sales in 2015.

Therefore Honda and Toyota stocks are safer mid- and long-term investments than Tesla stock. Toyota has recently resumed its role as the world’s largest automobile manufacturer. This is a position from where to launch a fuel cell hegemony, which Tesla will be hard to challenge given its huge market presence and vehicle variety.

Surely, Tesla can keep a niche market of high-performance cars with limited production, given the cost, but Tesla stock’s current price is unrealistic and nothing short of bubbly, marked by a 43-times book value and negative profit margins which the company masks as reinvestment. That might be, but Telsa may be better advised to invest in fuel cells itself rather than berating the technology as Elon Musk has done.   

If Tesla Motors continues at its current rate, it will break down like a house of cards because it is overvalued by almost every single metric. Conversely, Honda or Toyota can continue to develop fuels cells while still producing gasoline, diesel, and hybrid vehicles with plenty of room to adapt to battery-powered electric vehicles. However, for investors interested in risk, the choice is clear.

In order to consolidate the success of hydrogen fuel cells over battery power, just as Tesla Motors has boasted about making its patents freely available, Toyota released 5,680 patents to the public related to its hydrogen-powered Mirai, already on sale. Toyota expects to promote the popularity of hydrogen cars as well as lowering costs. Toyota’s successful experience with seven million hybrid cars sold since 1997 is the best possible reminder of the company’s predictions of what customers want.

The Bottom Line

Toyota understands that a single manufacturer alone cannot create a hydrogen fuel cell automotive future. (Source: Brian Bremmer,The World’s Biggest Car Company Wants to Get Rid of Gasoline,” Bloomberg Business, Dec.17, 2014.)  There needs to be a worldwide effort according to Akio Toyoda, president of Toyota. The bait has worked and Honda has already bitten, as has just about every major car manufacturer.

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