Portfolio X-Ray: Telsa Motors

Note: Read this introduction to see what I am doing in this series.

About Tesla Motors
Tesla Motors (Nasdaq: TSLA), as its name suggests, is categorized as an auto manufacturer. Unlike Ford or General Motors, which focus primarily on cars with internal combustion engines (ICE), Tesla instead manufactures and sell cars with purely electronic powertrains and engines. These cars are pretty pricey, with the Model S checking in at no less than $49,900, but the cost savings from avoiding gasoline completely, as well as associated tax credits for buying the vehicle, can make it a little cheaper in the long run. It also generates income from licensing its powertrains to other vehicle manufacturers, most famously Toyota in its RAV4 EV.

As I have done with the other companies in this series, here is the description of the company from the company’s most recent 10-K

“We design, develop, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components. We own our sales and service network and have operationally structured our business in a manner that we believe will enable us to rapidly develop and launch advanced electric vehicles and technologies. We believe our vehicles, electric vehicle engineering expertise, and operational structure differentiates us from incumbent automobile manufacturers.”

Why I Invested
Sure, the company makes stunningly beautiful cars, and I would gladly own one should said ownership be viable for me at sometime in the future. Plus, the Model S has received the best safety rating of any car ever tested, giving people another reason to purchase the pricey cars. However, the cars were not the primary reason I invested in the company. Don’t get me wrong; I think the company can continue to grow its manufacturing operations and sell more cars, though never on the level of the big automakers. In my opinion, Tesla will always remain a “boutique” company, at least in the United States. Through the end of 2012, Tesla sold a grand total of 5,100 vehicles (per the company’s 10-K). It has improved a bit so far this year, selling 10,500 Model S sedans through the first 6 months of the year, but these numbers are in line with what Ford, GM, and others sell in a week.

In what has become a recurring theme in my portfolio, and one that will pop up again when I cover Under Armour, is investing in a company because of its leadership. Tesla is no different. When I worked at The Motley Fool, I was fortunate enough to be in the office when Elon Musk was invited to speak to the company. Time has dimmed exactly what he said that afternoon, but I remember leaving impressed in the man. If I was smarter, I would have purchased shares of Tesla that day and experienced some exceptionally great returns. Nevertheless, the company remained on my watchlist, and I was still able to purchase it at an attractive price, one that has allowed me to reap some strong returns in the short time that I have actually owned the stock:

Shares purchased February 14, 2013

Shares purchased February 14, 2013

Musk has a history of backing successful companies, including PayPal before it was purchased by eBay. He is also the CEO of Space X, a private space exploration company, and SolarCity (Nasdaq: SCTY), the largest provider of solar power systems in the United States. He made news recently with his ideas surrounding the HyperLoop, a high-speed method of transportation that uses steel tubes and aluminum pods. If anything, Musk is a freethinker, something that I feel is lacking sometimes in today’s world.

When I Would Sell
I have already sold some of my initial position of Tesla; after the company announced its first profit in the first quarter of 2013, the stock price got a little crazy, which caused Tesla to become a little bit overweight in my portfolio. Nevertheless, I still held onto 2/3rds of my initial purchase, and plan on holding it for at least the next six months. I’ll be watching to see if the company is able to continue to expand on its production capabilities, as well as increase the number of Supercharger stations across the country.

The problem with Tesla is all the short interest that the stock receives from the markets. Currently, around 25% of the total shares outstanding are sold short, meaning that these people believe that the company is going down before it goes up. Because of this, good news often causes the shares to ascend a little faster than a normal company. While it is great as an investor to see this happen on a daily basis, it is also hard to know what is actually causing the movement of the share price. While I am not currently planning on purchasing more shares any time soon , the company is definitely worth watching.

Until next time…

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