1. Is Tesla’s stock price the result of irrational exuberance?
It’s the result of a positive forward outlook. Remember, Musk made a statement (price floor?) in buying $100M at the secondary offering price of $92. Even though Tesla’s future has way more going for it than Porsche, let’s use it as a comparison. It sold 140K units in 2012, hopes to hit 200K units in 2018. I think Tesla will sell 40K Model S in 2014, 80K Model S/X in 2016. and 200K Models all told in 2018. So Porsche, with 20% gross margins, has a $20B Market cap now on a much slower, more traditional growth story. Porsche isn’t changing the world, Tesla is.
2. Can you make money selling cars without air pollution credits?
Yes. Gross margins at the end of last quarter appeared to already be in the teens and improving, the ticket to solid profitability is 25% – it’s coming this year with ZEV credits. However, I wouldn’t be surprised for credit income to last through 2014, boosting bottom line and feeding development of Model X/Gen 3.
3. AutoData reports that Tesla sales declined 14.7% in May. Is this a one-month blip or a sign that the immediate demand by early adopters has been satisfied?
Blip. Likely resetting part of the line for European car manufacture (shipping this month). Elon has basically hinted at an annual demand of 40K – 15K US (that’s 1,250/momth), 15K Europe, 10K Asia. Frankly, these numbers are low. I think they assume EV competition at this price point. If no one else steps up, watch out!
4. Can you continue to roll out your distribution model nationwide, given the opposition of local dealers and the barriers of state franchise laws?
It’s inevitable, simply depends how long and how many fights it takes. Hopefully just one at the federal court level on upholding interstate commerce laws. Dealers can either adapt now, or spend a lot of money on lawyers, lose, and adapt later.
5. Does it really make sense to build a nationwide recharging network?
Yes. I think you’ll soon find business owners relieving Tesla of the capital burden of this. They’ll want their wallets on their properties. It removes range anxiety, builds brand, and provides income sources for technology licensed to other manufacturers and from grid buffering to utilities. Look for real income $ here.
6. Is guaranteeing the residual value a smart business decision?
Yes. Electric cars will carry a few uncertainties for the general public for awhile (not for me though). This removes the uncertainty of value. Tesla will make a lot from upselling new models to existing owners, allowing others to buy into the Model S at half the cost in a few years.
7. Can you bring down the price of batteries far enough to build a $40,000 car?
Yes. Lithium Ion battery technology is improving at 7%-8% a year. With no tech breakthrough, that’s 50% in 5 years compounded. Gen 3 car is 20% lighter/smaller, expect 200 miles range on about a 40-45 KWh battery. Right now, 60KWh Model S base prices at $62,400 after tax credit, $69,900 without. Battery improvements and volume will do it.
8. Every other EV manufacturer is struggling. Are you really that much better?
Yes! Better performance, design, manufacture, PR, ownership experience, etc. Really, this just implies the Fortune writer has not been in a Model S and compared it to electric or ICE competition. It’s VASTLY superior.
9. Are you in danger of overreaching?
Nope. Paypal, Space X, Solar City as exhibit #1. I only worry about his physical health. He has a great team of professionals at Tesla helping him execute.