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Tesla Motors Inc (TSLA): Value of the Carbon Credits

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Tesla Motors Inc (NASDAQ:TSLA)We will skip over the theory and evidence for or against ‘ZEC’ and instead suggest that legal arrangements have been a big factor in all economies. Property rights, intellectual property, anti-trust, legal monopolies, and taxes are all well-established legal arrangements. People don’t typically call out, ‘ExxonMobil only makes money because they own/lease the land they drill oil from.’ ZEC are just a new arrangement that is particularly onerous to some that don’t believe in global warming, but that doesn’t make revenues from them less valid.

Tesla Motors Inc (NASDAQ:TSLA) finished Dec 2012 with $413 million in revenue of which 12% were Zero Emission Credits largely from California. 12% is a lot of greenbacks, but 88% of the revenue was derived from its primary sales of electric cars to consumers and ‘deliverables’ to the likes of Mercedes Benz for their growing effort into EVs. Any reliance on the current Carbon Credit laws will diminish in the future for 2 reasons. The first is a factor of the auto-market; Tesla Motors Inc (NASDAQ:TSLA) will grow outside of the bounds of California and other companies will produce more efficient cars. It’s a no brainer, unless there is a marked change Tesla Motors Inc (NASDAQ:TSLA) will get less ZEC revenue per produced automobile.

The second reason is that Tesla Motors Inc (NASDAQ:TSLA) is an old school manufacturer. It has production facilities and machinery that eat money like the tiny balls in a game of Hungry Hungry Hippos. CEOs don’t typically like building factories only to see them unproductive because of an emerging and fickle market. Tesla Motors Inc (NASDAQ:TSLA) won’t say ‘no’ to its competitors handing them money, but it’s not creating cars to get ZEC profit. You may not like Elon Musk, the founder and CEO, but you cannot say he lacks the long view or ambition.

That Carbon Credit 12% did push the company into the black this quarter, but building out gas stations, car manufacturing, a battery producer, car servicing, and dealerships is no cheap task. Elon knows that he must eliminate consumer’s resistance to buying a luxury ‘golf cart’. Tesla Motors Inc (NASDAQ:TSLA) is taking points from Apple Inc. (NASDAQ:AAPL) on how to create a consumer experience.

What do I mean by that? Apple Inc. (NASDAQ:AAPL) has thrived on creating a buzz around a high-quality ecosystem they controlled from start to finish.  Apple succeeds by creating a full user experience that should never require any other manufacturer or distributor.  They created a system of cleaning up competitors products and making them beautiful and intuitively functional beyond expectations. Then they created cheaper versions to help price sensitive consumers live their gadgetry dreams.

As of late despite Apple Inc. (NASDAQ:AAPL) creating some great devices they are beginning to lose their hardcore apple fans.  This goes beyond the infamous Apple Maps debacle and extends well into their other products.  Samsung phones and various tablets are creating great if not superior experiences.  The company should expect to see continued growth however its sheer size and the more competitive landscape leave breakouts in doubt.

Apple is not going to have the explosive growth they had before but the valuations are worth looking at.  With a nearly nearly 3% dividend yield and a publicized effort to maintain high dividends and stock purchases over the following years provides a jumping off point for more work.  The stock has seen extensive price volatility but is near its 1 year low.  With a current Price/Earnings ratio at 10 it’s a reasonable price to consider what effectively is one of the largest cash holders in the world. With all this cash the company is stable if not it’s equity price.  At a P/E of 10, dividends along the way providing a nice cushion to be paid to see if Apple can continue it’s history of beating expectations.

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