Is It Still Too Premature For Electric Vehicles?

Tesla Motors (NASDAQ:TSLA) is slated to open Supercharger stations in California on October 19. This marks the beginning of an effort to sprinkle the country with 440-volt charging stations that can pour 300 miles worth of electricity into a Tesla Model S in an hour. Rapid charging infrastructure and long-range capacity are essential if Tesla is to win an uphill battle against established auto industry giants.

Tesla was pretty much at the bottom of the sales pile in September 2012. Out of the 5,809 plug-in cars sold, the Tesla Model S accounted for an estimated 150. General Motors’ (NYSE:GM) Chevrolet Volt, which was recently slammed over high production costs, topped the chart with 2,851 units sold. Toyota’s (NYSE:TM) Prius PHV claimed 1,652 units sold in the same period. Tesla did beat out the Ford (NYSE:F) Focus Electric model, which only sold 59 units. The upside for Ford, Toyota, and GM is that they don’t rely on electric vehicle sales. Plug-in cars are what will make or break Tesla motors, and the company has been hit with some setbacks.

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The company recently cut both its 2012 revenue forecasts and production expectations. The stock plunged nearly 10 percent at the end of September when the delays were announced. As of September 23, Tesla had produced only 255 of its luxury sedans, delivering 132 to customers. The United States Department of Energy also asked the company to begin paying back a $465 million loan more quickly that initially proposed. The company has issued a second offering of stock to raise more cash.

Shares of Tesla have slowly bled value over the last 52 weeks. Supply chain challenges, longer than expected employee training periods, and competitors with some cash to throw around have caused investors to worry. If the company is going to succeed, it doesn’t seem poised to do it in the short run. According to The Wall Street Journal, 78 percent of Deutsche Bank’s net present valuation of the company is due to estimated cash flows in post 2020.

Tesla expects to deliver 2,500 to 3,000 cars in the fourth quarter of 2012, and plans on meeting its 2013 production goal of 20,000 units. The company landed a $10 million grant from California to build an assembly plant and employ up to 500 people to build a sport-utility vehicle in the state called the Model X. Tesla’s vehicles compete in the mid-to-upper-ranged luxury market against vehicles like the Audi A8, where share is difficult to grab against brand loyalty.

Government loans to the company have attracted some negative attention. Tesla has made payments on time and in full so far, but memories of Solyndra are still fresh in skeptics’ minds. The company is playing hardball in a game that many aren’t sure the country or the world is ready for. Hybrid vehicles seem to be the favorite among fuel economy conscious consumers, a market Toyota has long dominated and Ford is aggressively entering.

Increasing competition from natural gas vehicles could also play to Tesla’s disadvantage. General Electric (NYSE:GE) and an affiliate of Chesapeake Energy (NYSE:CHK) are laying down fueling infrastructure for natural gas similar to Tesla’s Supercharger stations. States seem more eager to convert fleets to natural gas than to all electric. This trend was highlighted at a recent summit hosted by America’s Natural Gas Alliance where natural gas vehicle adoption was promoted, with over 20 states engaged.

Tesla Motors is the flagship for electric vehicles. The company has performed well in the face of a difficult market and hard economic times. If the Model S and Supercharger infrastructure are successful, the start up may pave the way for ubiquitous adoption of electric vehicles. If not, it may be a while before technology and infrastructure advance to the point where consumers can forget about gasoline.

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