(SCTY) Archives

An Update on the Tesla Fire

Once again, Tesla (TSLA) visionary, Elon Musk, surprised to the upside with his latest reports on earnings and production for his revolutionary vehicle.

Musk, who also founded groundbreaking Space X and Solar City (SCTY), expanded on his plans to manufacture in China and expand sales in Europe, where 220 volts is already standard.

The first ever left hand drive Model S-1 was just delivered in London to E.L. James, author of Fifty Shades of Grey, a fictional tome that is racy in its own right (worst book I ever read).

You can? keep a good stock down, which is now spitting distance from an all time high. That was the obvious message on Tesla (TLSA) shares in the wake of last year?s fire that consumed one of its $80,000 Model S-1?s on a Washington state road after it ran over the rear bumper of the truck it was following.

The video was quickly plastered all over YouTube (click here to view). Tesla quickly delivered a new car to the grateful owner within a week.

This was the first S-1 to catch fire since the production run started two years ago. There have been two others since. Compare that to the roughly 400 gasoline powered vehicles that catch fire on US roads nearly every day.

If you really want to see how volatile gasoline is, try lighting a campfire with it some day. Even tossing in matches in from a great distance, as I once did, you?ll be lucky to have your eyebrows left. I didn?t.

To make amends, Tesla is installing titanium armor plating on the bottom of every S-1 for free. They did mine this week, and gave me new a new Tesla as a loaner!

Tesla followed up quickly with an analysis and a letter with a complete explanation sent to all other S-1 drivers signed by none other than CEO Elon Musk. I have included the entire text below in italics. He doesn?t leave much to the imagination.

If only all car manufacturers behaved like this!
?Earlier this week, a Model?S traveling at highway speed struck a large metal object, causing significant damage to the vehicle. A curved section that fell off a semi-trailer was recovered from the roadway near where the accident occurred and, according to the road crew that was on the scene, appears to be the culprit. The geometry of the object caused a powerful lever action as it went under the car, punching upward and impaling the Model?S with a peak force on the order of 25 tons. Only a force of this magnitude would be strong enough to punch a 3 inch diameter hole through the quarter inch armor plate protecting the base of the vehicle.

The Model?S owner was nonetheless able to exit the highway as instructed by the onboard alert system, bring the car to a stop and depart the vehicle without injury. A fire caused by the impact began in the front battery module ? the battery pack has a total of 16 modules ? but was contained to the front section of the car by internal firewalls within the pack. Vents built into the battery pack directed the flames down towards the road and away from the vehicle.

When the fire department arrived, they observed standard procedure, which was to gain access to the source of the fire by puncturing holes in the top of the battery's protective metal plate and applying water. For the Model?S lithium-ion battery, it was correct to apply water (vs. dry chemical extinguisher), but not to puncture the metal firewall, as the newly created holes allowed the flames to then vent upwards into the front trunk section of the Model?S. Nonetheless, a combination of water followed by dry chemical extinguisher quickly brought the fire to an end.

It is important to note that the fire in the battery was contained to a small section near the front by the internal firewalls built into the pack structure. At no point did fire enter the passenger compartment.

Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. A typical gasoline car only has a thin metal sheet protecting the underbody, leaving it vulnerable to destruction of the fuel supply lines or fuel tank, which causes a pool of gasoline to form and often burn the entire car to the ground. In contrast, the combustion energy of our battery pack is only about 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan.

The nationwide driving statistics make this very clear: there are 150,000 car fires per year according to the National Fire Protection Association, and Americans drive about 3 trillion miles per year according to the Department of Transportation. That equates to 1 vehicle fire for every 20 million miles driven, compared to 1 fire in over 100 million miles for Tesla. This means you are 5 times more likely to experience a fire in a conventional gasoline car than a Tesla!

For consumers concerned about fire risk, there should be absolutely zero doubt that it is safer to power a car with a battery than a large tank of highly flammable liquid.?

Elon Musk
CEO,
Tesla Motors

Tesla Traffic Jam

Buy Solar Stocks on the Dip

Newsletter

Now that the stock market appears destined to soon enter correction territory, I have started searching for industries and companies that I want to buy at the bottom. The solar industry is at the top of that list.

Solar has a been a long time in coming. For decades, it was a niche energy source with very narrow following among scientists, the military, and Greenpeace activists. The problem was that it was just too expensive. It made sense only to those with unlimited budgets (the army), pursuing a political agenda (environmentalists), or when there was no other alternative power source (outer space).

Ironically, what really got the solar bandwagon moving was oil, which saw prices soar to $150 a barrel in 2008. That dramatically raised the breakeven cost of solar. Projects that only existed on paper suddenly made economic sense.

Then, Barack Obama was elected president. One of his first moves was to make available over $100 billion in subsidies for alternative energy projects of every description. All of a sudden, it was off to the races for solar.

This led to the first solar stock market boom in 2009. Some highflyers, like First Solar (FSLR) rose tenfold (it was a favorite ?BUY? recommendation of mine at the time). They were aided by states like sun-drenched California that mandated 20% of power consumption comes from alternative sources, to rise to 30% in the 2020?s.

This created an enormous solar and wind infrastructure throughout the west to meet the state?s voracious needs. Some 29 other states have passed similar laws with varying targets.

I inspected the centerpiece of the state?s solar strategy, flying over the gigantic Ivanpah facility in a wheezing, rented Cessna 172 in the barren, baking, but beautiful Mojave Desert. I brought plenty of extra water bottles and a compass in case I crash-landed and had to walk home.

It all looks like a film set from a science fiction movie, with 347,000 concave mirrors placed in enormous circles focusing light on hot water boilers atop three 460-foot towers. The plant opened in February, 2014 and is generating 377 megawatts of electricity, enough to power 140,000 homes in the Los Angeles area.

Planned a decade ago, the technology is now so primitive that it is unlikely to be ever used again. Far more advanced than film, solar is now taking over the world.

Then China came in and spoiled the party. Overproduction by poorly managed and weakly financed Chinese solar firms using inferior technologies quickly glutted the global market, and solar prices crashed by 80% or more. Many companies did not survive, such as the San Francisco Bay Area?s Solyndra, which defaulted on some $536 million in federal government loans (the feds got $143 million back).

This triggered a Darwinian clearing out of the industry, where only the strongest, the most innovative, and the most desperate survived. Technologies and efficiencies improved. The administration extended a helping hand by slapping hefty anti dumping tariffs on Chinese imports. The industry is lobbying for further restrictions. This all set the stage for a solar renaissance.

For the first time in history, solar is now cost competitive with conventional sources of power on a standalone, unsubsidized basis. As a result, the industry is exploding. In 2013, solar accounted for 29% of new power generation capacity in the US, after quasi-green natural gas, at 46%.

The advent of cheap solar roof panels and ?smart? electric meters in 43 states has enabled individuals to get in on the act. Such devices are now a standard feature on most new high-end homes. They genuinely do save money, especially when considering that utilities will bill you up to 50 cents per kilowatt hour for prime time consumption, compared to their average rate of 11 cents. There have been over 200,000 such installations in the past two years, half in the Golden State.

The Department of Energy wants to see solar grow from 1% of total generation today to 27% by 2050. This is creating the basis for a gigantic industry in the future. Hence, my interest as a long-term equity investor.

All of this will require a complete rethinking of the electric utility industry (XLU), which still uses a volume based business model that has remained unchanged for 120 years. The more they sold the more money they made.

The utility industry has mixed feeling about the new solar revolution. They are going to have to evolve from distributors of power for a single, large, capital-intensive source to an intermediary operation that buys and sells power between millions of users and producers. This is easier said than done, as this is the most conservative of American industries. People run to utilities in a bear market for a reason.

Only the other hand, moving towards solar and other alternatives gets them out of the carbon burning business, either through using coal or oil as fuel. There is not a utility in the country that isn?t swamped by lawsuits from well represented consumers claiming that the byproducts from burning these traditional fuels gave them asthma, lung cancer, or worse.

In the end, it won?t be a desire to save the environment, or the expediency to appear politically correct that will convert utilities to solar. It will be hard-nosed business sense.

The buy on the dip list is fairly short. The front-runner in this industry is the aforementioned First Solar (FSLR), which has been an industry leader for two decades. Not only is their US business booming, they have a gigantic project in western China that promises to spin off profits for years to come.

SunPower Corp (SPWR) has the attraction of a $1 billion order backlog. Or you can go generic and buy the Guggenheim Solar ETF (TAN), which tacked on and impressive 270% last year.

I am less enamored with Solar City (SCTY). It is in the business of installing roof panels on homes. It takes advantage of generous government subsidies and the current ultra low cost of financing to keep prices low.

As much as I applaud the long-term vision of founder, Elon Musk, his association with the company has given it a cult like status. That is good for the share prices, but bad for valuations, which are through the roof. A greater dependence on subsidies could hurt them in the future.

Some formidable challenges lie ahead. In 2017 the government?s investment tax credit for solar drops from 30% to 10%. Other state subsidies are expiring as well. If this coincides with a recession that triggers a collapse in the price of oil, we could be in for another great clearing out.

Hopefully, by then, steadily advancing technology will further cut costs by half, making it possible for more firms to survive.

Until then, let the sun shine in!

On The Tesla Melt Up

Diary, Newsletter

Tesla (TSLA) was the short squeeze that was begging to happen. Five guys owned 50% of the company, including the visionary founder, Elon Musk. Of the remaining float, 45% had been borrowed and sold short by hedge funds. All that was needed to ignite a rally was for someone to say ?Boo?.

Someone said exactly that, and their shares rocketed from $30 to $265 in little more than a year.

A poorly researched hatchet job by the New York Times on the new all electric Tesla Model S-1 produced a flood of countervailing positive reviews extolling the many virtues of the revolutionary vehicle (click ?My Take on the Tesla Tiff?). The Times could not have delivered a more effective marketing campaign if you paid them millions.

Then the company announced its first profit in history. It sold 4,900 cars, versus an expected 4,500, one of which was to me. Some 70% were of the highest margin, 80 kWh, $80,000, 300-mile range version. This was on the heels of its first ever price increase. The Q1, 2013 net jumped to $11.9 million compared to an $89.9 million loss in the earlier quarter. It boosted its forecast of this year?s total production from 20,000 to 21,000 vehicles. In 2014, this figure could hit 40,000.

There is now a one-year waiting list for the least expensive $60,000 model. Cash is pouring in so fast that Tesla announced it would pay back its $465 million Department of Energy loan five years early. It is also talking to Google about adopting its driverless technology.

South African native, Elon Musk, is said to be the model on which the Iron Man character, Tony Stark, is based. His late 2012 IPO for Solar City (SCTY) has also delivered a gangbusters performance, up 216%. Next on the calendar is taking Space X public, his heavy lift rocket company with a NASA contract potentially worth $1 billion. Since last year, his personal fortune has soared to $15 billion. This is truly the man with the golden touch.

The onslaught of good news triggered one of the sharpest and most furious short squeezes in stock market history. (TSLA) is now one of the top performing shares in the world this year, for the second year in a row. Elon did get some outside help. Squeezing the largest short open interest stocks was one of the most profitable trading strategies of 2013. Tesla simply followed on the heels of BlackBerry (BBRY), Herbalife (HLF), and Netflix (NFLX), with similar results.

There is a cautionary tale in the Tesla action. Many of the players on the short side were global warming deniers who believed the whole thing was a leftist hoax. They thought Tesla, and all the other ?green? plays, like First Solar (FSLR), were the artificial creations of government subsidy that were all going to zero once the free money was withdrawn.

After I toured the Tesla factory and saw that he car was real, I warned some of these guys they were out of their mind. Whenever one filters investment decisions through a political prism, whatever that prism is, you might as well pile up your money and set fire to it.

At $206 a share, with a market capitalization of $25 billion, Tesla is now one of the world?s largest car companies, beating out Fiat (FIATY), which owns Chrysler and Peugeot (PEUGY) and is nearly half the size of General Motors (GM). This is for a company that has only made 60,000 cars!

Tesla is now considering whether it should sue the states of Texas and New Jersey, which have banned sales of the cars. They are trying to force the company to sell through a local, good ol? boy dealer network. Tesla only sells its cars online, another ground breaking and cost cutting aspect of their business model. So much for deregulation in the Lone Star State. I guess they are trying to keep us hooked on Texas Tea.

Next year Tesla broadens out its product line to include the Model X, an all electric SUV, which should cost about the same. I am number 465 on the waiting list for that one, even though I ordered it on the first day it went on sale (everyone else ordered the car on their cell phones, while I waited to get home and do it on my Mac).

Most on Wall Street have completely missed the main point of the whole Tesla story. The real play here is for a low end mass market vehicle, which Tesla will bring out in 4-5 years, using the manufacturing expertise and technology they developed with the earlier Roadster and the S-1.

Keep in mind that electric car battery ranges are doubling about every four years. Look no further than my own garage, where I jumped from an 80 mile range Nissan Leaf to the Tesla S-1 in just two years. I just sold my starter electric car to an ecstatic PhD in biochemistry at UC Berkeley for a bargain $18,500.

That means that by 2018, you will be able to buy a 300-mile range, five passenger Tesla hatchback for about $40,000. This will enable the company to grow into a major worldwide industry presence. That?s when the ?Big Three? becomes the ?Big Four?. That?s what a $206 share price is screaming at you.

Let me explain what else is in the works. By next year, there will be 20,000 Tesla?s in the San Francisco Bay Area. Our local utility, PG&E (PGE), currently sells us power for electric cars for 5 cents a kWh between midnight and 7:00 AM. By some time in 2014, if you leave your car plugged in, it will then buy it back from you during the day at 40 cents a kWh!

With the backup supply of 20,000 1,000-pound Tesla lithium ion batteries, (PGE) might be able to take a few natural gas power plants offline (the last coal fired plant in California was closed about 10 years ago). Not only will the power for your car be free, your utility will pay you to drive it! The system is already undergoing beta testing at a utility in Delaware. Welcome to the future!

Last weekend, I drove to the local shopping mall to run some errands. There was a classic car show on, so there was no spare parking. I asked the show organizers if they were accepting late entries, just to get a parking space.

Both the fans and the other exhibitors were drawn to my S-1 like a magnet, mobbing the car and barraging me with questions. Some thought it was a joke, as there was no visible motor. I felt like Marty McFly bringing a car from Back to the Future. I popped out to run my errands. When I returned, I had won first prize and a blue ribbon.

There is one battery problem that I should write about here. Since the end of the ski season, my Toyota Highlander Hybrid has sat neglected in my driveway, accumulating pine needles and bird poop. ?Since I?m not driving it enough to recharge the conventional lead acid battery, it keeps going dead. The Auto Club has already been out to give me a jump-start three times, and they say next time, they are going to bill me.

I have written at length about Tesla since the inception of this letter five years ago. To read another recent piece with more details on the engineering and the specs, please click here ?Follow Up on Tesla?. Expect to hear a lot more.

The Competition

First Prize for a Late Entry

I Could Have Sworn I Left the Engine There Yesterday

In Your Future

Another Miracle from Tesla

Diary, Newsletter

Tesla has announced a new battery swapping service that will enable drivers to get a full charge for their all-electric Model S-1 sedans in 90 seconds. The service will be available at strategically located charging stations around the country, and will cost $60, about the cost of an equivalent full tank of gas.

The swap is fully automated. You just drive over a machine and it is all done for you. No crawling under the car on your back is required.

There, owners will have the option of getting a fast charge for free in 45 minutes, or the instant battery swap. Given that the 270-mile range of the car is greater than the range of by bladder, I?ll probably be opting for the former.

The move offers some very interesting long-term implications. It certainly means that Tesla is not worried about the life of its 1,000-pound lithium ion batteries, which cost about $32,000 per vehicle to produce. If the range starts to fade, you just take it in for a swap.

In any case, the company?s mercurial founder and Iron Man model, Elon Musk, has other plans for old, depleted batteries. For a start, they can be used as backup storage devices for solar powered homes wired by his other firm, Solar City (SCTY), a top performing stock of 2013.

In the meantime, Tesla?s shares are impossibly maintaining a stratospheric price of over $100, valuing the company at $11 billion, and making it the number one performing American stock this year. This is despite announcing its first recall for a minor weld holding down the rear seat.

I tell my kids that I rode a time machine ten years into the future, bought the Tesla, and brought it back home to drive them. Ever the wise aleck, my oldest son asked why I didn?t obtain something more valuable, like a sports statistics magazine showing who will win the next ten Super Bowls. Now, that would be useful!

For a video of Elon demonstration the battery swap process last week and a fabulous piece of marketing, please click here. No wonder people are going gaga over this company!

On the Tesla Melt Up

Diary, Newsletter

This was the short squeeze that was begging to happen. Five guys owned 50% of the company, including the visionary founder, Elon Musk. Of the remaining float, 45% had been borrowed and sold short by hedge funds. All that was needed to ignite a rally was for someone to say ?Boo.?

That is exactly what Ben Bernanke has done with his non stop quantitative easing. A poorly researched hatchet job by the New York Times on the new all electric Tesla Model S-1 produced a flood of countervailing positive reviews extolling the many virtues of the revolutionary vehicle (click here for ?My Take on the Tesla Tiff?). The Times could not have delivered a more effective marketing campaign if you paid them millions.

Then the company announced its first profit in history. It sold 4,900 cars, versus an expected 4,500, one of which was to me. Some 70% were of the highest margin, 80 kWh, $80,000, 300-mile range version. This was on the heels of its first ever price increase. The Q1, 2013 net jumped to $11.9 million compared to an $89.9 million loss in the earlier quarter. It boosted its forecast of this year?s total production from 20,000 to 21,000 vehicles.

There is now a one-year waiting list for the least expensive $60,000 model. Cash is pouring in so fast that Tesla announced it would pay back its $465 million Department of Energy loan five years early. It is also talking to Google about adopting its driverless technology.

South African native, Elon Musk, is said to be the model on which the Iron Man character, Tony Stark, is based. His IPO late last year for SolarCity (SCTY) has also delivered a gangbusters performance, up 216%. Next on the calendar is taking Space X public, his heavy lift rocket company with a NASA contract potentially worth $1 billion. Since January, his personal fortune has tripled to $7 billion. This is truly the man with the golden touch.

The onslaught of good news triggered one of the sharpest and most furious short squeezes in stock market history. (TSLA) is now one of the top performing shares in the world this year, up a staggering 194%. Elon did get some outside help. Squeezing the largest short open interest stocks has been one of the most profitable trading strategies of 2013. Tesla is simply following on the heels of Blackberry (BBRY), Herbalife (HLF), and Netflix (NFLX), with similar results.

There is a cautionary tale in the Tesla action. Many of the players on the short side were global warming deniers who believed the whole thing was a leftist hoax. They thought Tesla, and all the other ?green? plays, like First Solar (FSLR), were the artificial creations of government subsidy that were all going to zero once the free money was withdrawn.

After I toured the Tesla factory and saw that he car was real, I warned some of these guys they were out of their mind. Whenever one filters investment decisions through a political prism, whatever that prism is, you might as well pile up your money and set fire to it.

At $97 a share, with a market capitalization of $12 billion, Tesla is now one of the world?s largest car companies, beating out Fiat (FIATY), which owns Chrysler and Peugeot (PEUGY). This is for a company that has only made 10,000 cars! Tesla now boasts a price earnings multiple of 70X, compared to 9.6X for Ford Motors (F).

What Tesla should do here is file for a secondary share offering and use the cash raised to retire debt. They can also sue the state of Texas, which has banned sales of the cars. They are trying to force the company to sell through a local, good ol? boy dealer network. Tesla only sells its cars online, another ground breaking and cost cutting aspect of their business model. So much for deregulation in the Lone Star State. I guess they are trying to keep us hooked on Texas Tea.

Even at the January price of $33, Tesla was expensive when compared to its peers. The investors were clearly taking a longer-term view. The demand for $60,000-$110,000 cars is limited. Next year it broadens out to the Model X, and all electric SUV, which should cost about the same.

Most on Wall Street have completely missed the main point of the whole Tesla story. The real play here is for a low end mass market vehicle, which Tesla will bring out in 4-5 years, using the manufacturing expertise and technology they developed with the earlier Roadster and the S-1.

Keep in mind that electric car battery ranges are doubling about every three years. Look no further than my own garage, where I jumped from an 80 mile range Nissan Leaf to the Tesla S-1 in just two years. I just sold my starter electric car to an ecstatic PhD in biochemistry at UC Berkeley for a bargain $18,500.

That means that by 2018, you will be able to buy a 300-mile range, five passenger Tesla hatchback for about $40,000. This will enable the company to grow into a major worldwide industry presence. That?s when the ?Big Three? becomes the ?Big Four?. That?s what a $97 share price is screaming at you.

Let me explain what else is in the works. By next year, there will be 20,000 Tesla?s in the San Francisco Bay Area. Our local utility, PG&E (PGE), currently sells us power for electric cars for 5 cents a kWh between midnight and 7:00 AM. By sometime in 2014, if you leave your car plugged in, it will then buy it back from you during the day at 40 cents a kWh!

With the backup supply of 20,000 1,000-pound Tesla lithium ion batteries, (PGE) might be able to take a few natural gas power plants offline (the last coal fired plant in California was closed about 10 years ago). Not only will the power for your car be free, your utility will pay you to drive it! The system is already undergoing beta testing at a utility in Delaware. Welcome to the future!

Last weekend, I drove to the local shopping mall to run some errands. There was a classic car show on, so there was no spare parking. I asked the show organizers if they were accepting late entries, just to get a parking space.

Both the fans and the other exhibitors were drawn to my S-1 like a magnet, mobbing the car and barraging me with questions. Some thought it was a joke, as there was no visible motor. I felt like Marty McFly bringing a car from Back to the Future. I popped out to run my errands. When I returned, I had won first prize and a blue ribbon.

There is one battery problem that I should write about here. Since the end of the ski season, my Toyota Highlander Hybrid has sat neglected in my driveway, accumulating pine needles and bird poop. Since I?m not driving it enough to recharge the conventional lead acid battery, it keeps going dead. The Auto Club has already been out to give me a jump-start three times, and they say next time, they are going to bill me.

I have written at length about Tesla since the inception of this letter five years ago. To read another recent piece with more details on the engineering and the specs, please click here. Expect to hear a lot more.

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First Prize for a Late Entry

I Could Have Sworn I Left the Engine There Yesterday

First Prize for a Late Entry

I Could Have Sworn I Left the Engine There Yesterday