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Tesla Motors Inc (TSLA): Why Are Some Investors Bearish?

Tesla Motors Inc (TSLA)With a company as different as Tesla Motors Inc (NASDAQ:TSLA), there are bound to be many myths and misconceptions about it. Adding to this that Tesla’s line of business has become a political football and we have a company that is too often defined by the falsehoods surrounding it. Here we will try to dispel two of the most common myths about Tesla Motors Inc (NASDAQ:TSLA) and its products.

Myth #1: Tesla’s batteries are ready to burst into flames

The lithium-ion battery has been getting a lot of attention lately from events such as the The Boeing Company (NYSE:BA) battery fires. Too often, a false connection is drawn between these batteries and the ones used in Tesla Motors Inc (NASDAQ:TSLA)’s vehicles. The batteries used in the The Boeing Company (NYSE:BA) aircraft relied on a few large cells that were rectangular in shape thus creating more area of contact between cells. When the issue with lithium-ion batteries is thermal runaway (ie one cell overheating setting off an unstoppable cycle throughout the battery), one can see how the The Boeing Company (NYSE:BA) battery is more vulnerable to this.

By contrast, Tesla Motors Inc (NASDAQ:TSLA) uses thousands of cylinder shaped small cells. If one of these cells overheats, the battery management system can shut it down before the small cell has the chance to overheat surrounding cells. Tesla sources its cells from Panasonic, a company that makes millions of cells for uses in smaller consumer electronics. Even with the large number of cells Tesla uses, Panasonic still derives most of its battery business from other sources but Tesla Motors Inc (NASDAQ:TSLA)’s purchases could become more meaningful as the automaker introduces more models and ramps up production.

Myth #2: Tesla Motors is another Fisker or Solyndra

When Tesla Motors Inc (NASDAQ:TSLA) is brought up, there is almost always someone who considers the automaker another clean energy government failure. Addressing the financial success of the company, it is clear that Tesla is far ahead of where Fisker or Solyndra ever were. Fisker was unable to get production to profitable levels and has slowly bled cash while Solyndra’s product, a decent product in itself, became a victim of cheap Chinese solar panels that undercut Solyndra’s costs. Unlike these two companies, Tesla has increased production rates to profitable levels, has a product competitive at its price point, and expects to post a profit for Q1 2013.

On the issue of the Department of Energy loan, many have criticized the $465 million loan given to Tesla Motors Inc (NASDAQ:TSLA) citing government interference in the market. What is often not said is that the Tesla loan is just a small part of a far larger program established under the Bush administration to develop more energy efficient cars. The entire program was funded with $25 billion and includes a nearly $6 billion loan to Ford Motor Company (NYSE:F) and a $1.6 billion loan to Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY). And unlike the loan given to Solyndra, the loan to Tesla is on track to be paid back five years ahead of schedule.

The loan to Tesla Motors Inc (NASDAQ:TSLA) was also more critical to the company’s survival than those to Ford Motor Company (NYSE:F) and Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY). Both of these major automakers used the funds to develop vehicles that are not expected to contribute significant revenues for a number of years. The Ford Focus Electric and the Nissan Leaf both are good ways for the companies to real world test emerging technology but at a price well above comparable gas vehicles, sales have not lived up to most expectations. Despite this, look for future development of electrics from these two companies as they improve the technology and drive down the price of it over time.

Compared to Tesla Motors Inc (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and Nissan Motor Co., Ltd. (ADR) (OTCMKTS:NSANY) are automotive giants. Valued at $55 billion and $44 billion respectively, the millions of cars produced by both companies to generate the revenue needed to fund research for new technologies, a small part of that funding being for electrics. Even so, investors should not buy these two companies for their EV prospects because, as a percentage of total sales, the Focus Electric and Leaf are almost meaningless. Instead, investors should look at the traditional business behind the automakers examining earnings potential, dividends (both companies pay one), and using comparative industry valuations. Investors that choose to buy shares based on this information will then be able to count EV sales as an added bonus to their investment.

Tesla’s future

With an announcement of profitability, Tesla Motors Inc (NASDAQ:TSLA) shares have turned sharply higher in the month of April. This takeoff in Tesla shares follows the ramp up of production to at least 500 Model S sedans per week. Reservations continue to be added and with expansion into Europe and Asia coming soon, we could see and even larger increase in reservations from regions where gas prices are higher and EV incentives are greater. While still a risky investment, Tesla is not as risky as it once was. As more Teslas hit the roads, myths surrounding them should begin to be dispelled by both the owners and by the cars themselves.

The article Top Tesla Myths originally appeared on

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