Tesla Motors Inc (TSLA): Three Bear Arguments That Should Hibernate

3. The Model S is too pricey relative to other high-end, but gas-powered, vehicles

This argument is based on several faulty premises, and is also not accurate in some cases.

The writer uses a net present value, or NPV, analysis pitting the Tesla Model S with a specific higher-end car model or two. The goal is to show the Tesla’s fuel savings does not justify its somewhat higher cost. The conclusion is, “therefore, people won’t buy them or EVs.” (Those folks obviously haven’t seen the Q1 2013 sales figures for large high-end cars! Tesla Motors Inc (NASDAQ:TSLA) trumped the competition — chart at end of section.)

There are several things wrong with this one, but let’s keep it to the biggies. Let’s even go with the assumption that the Model S is pricier than the high-end competition, which is not accurate across the board.

Firstly, affluent people who are deciding between high-end cars – or high-end anythings, for that matter – are almost never making buying decisions based solely on an economic basis. In fact, I’d go further and say that holds true for most middle-income people, too. This is even truer with certain products, such as cars, as there are numerous factors at play: aesthetics, safety, reliability, etc.

Secondly — and related, cars are not commodities to most people. How can one suggest that another vehicle is exactly-to-nearly comparable to a Tesla Model S? Or select other distinct vehicles? Ford Mustangs, for instance?

Example: Let’s say a Mercedes, BMW, or Audi model ‘whatever’ is X dollars cheaper in present-dollar terms for many drivers. So, what about people who prefer the aesthetics of a Tesla Motors Inc (NASDAQ:TSLA)? What about people who don’t want a car that many others drive? What about people who want to support an American company? What about people who like the idea of electricity powering their vehicle rather than gasoline for whatever reason (environmental, national security)?

Q1 full-sized luxury vehicle sales

Won’t sell well? Not selling? Me thinks those bears’ porridge is spiked!

Source: CNN Money, from LMC Automotive data

Takeaway

The article Tesla Motors: 3 Bear Arguments That Should Hibernate originally appeared on Fool.com and is written by BA McKenna.

BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. BA is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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