To much fanfare on Tuesday, Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk announced what the company is calling a “revolutionary automotive financing product” that would allow an individual to buy a Tesla Motors Inc (NASDAQ:TSLA) Model S for only $500 a month with no money down.
Talking heads and analysts spent much of Tuesday night poking holes in the Tesla Motors Inc (NASDAQ:TSLA) press release, questioning the company’s assumptions in the $500 calculation, with some even going so far as to question the company’s viability going forward. By lunchtime on Wednesday the stock was down over 8% to around $40.50.
But don’t be small-F fooled: This reaction is nothing more than a buying opportunity.
I’m disappointed, too
To be fair, the disappointment is justified. The program is hardly revolutionary–it’s essentially just a workaround to obtain the benefits of a lease without burdening banks with the risk of leasing a car with an unknown residual value.
The prospective Model S owner will still have a $1,000+ check to cut to either Wells Fargo & Co (NYSE:WFC) or US Bank each month for the next 66 months. To get arrive at $500 per month, Tesla Motors Inc (NASDAQ:TSLA) then subtracts potential cost savings from the actual loan payment. Potential cost savings, per Tesla Motors Inc (NASDAQ:TSLA), include fuel savings and tax credits, but also more dubious savings like the value of time saved by riding in the carpool lane or writing off the car as a business expense.
(By the way, how many IRS agents do you think were sharpening their pencils Wednesday morning at the thought of auditing tax returns with a Tesla Motors Inc (NASDAQ:TSLA) showing on the depreciation schedules?)
A Model S doesn’t really cost $500 a month? Who cares?
Before you sink too low in your chair in disappointment that you still can’t afford that upgraded Model S, remember these two things:
1. You can still afford to buy shares
The stock may be down big in the aftermath of the financing announcement, but its still up nearly 15% year to date. Its up over 40% since Dec. 31, 2011. I’m still a Tesla bull, even after such a strong run.
The company just announced its first-ever profit; gross margins are improving and heading toward 25%; the Model S is getting incredible press coverage (any press is good press); and the company is, by all financial measures, successfully transitioning from R&D mode into manufacturing mode.
2. There is always next year
Tesla’s upside as a company is only partially fueled by the Model S. Yes, the design is beautiful, and the technology under the hood is best in breed. But even with special financing, this car was never meant for the masses.
An investment in Tesla today is an investment in its product pipeline for 2014 and beyond. The Model S is a proof of concept that will fuel more growth next year, when the Model X, a crossover SUV, comes online.
Wednesday night, the analyst community nearly uniformly agreed that the new “revolutionary” financing product would not increase demand for the Model S, and it will probably be proven more-or-less correct in 2013.
But in 2015, that will change.
Tesla is currently developing its first entry-level luxury vehicle, which will be priced to compete with a BMW 3 Series and Mercedes C class. Through the lens of the huge media coverage following Elon Musk’s first tweet, through to Wednesday’s chorus of disappointment, it is pretty clear to see that the public wants to buy this technology and this brand. In 2015, the masses will be able to afford it.
It always boils down to risk and reward
There is certainly risk in an investment in Tesla. Huge, entrenched competitors have piles of cash to throw at R&D to catch up to the Model S. Tesla’s flagship car may turn out to be unreliable and have unsustainable maintenance costs. The infrastructure to support electric vehicles and Tesla’s own “Superchargers” may become obselete before the product and technology reaches critical mass. And operationally, Tesla may not be able to sustainably keep manufacturing costs in line while still innovating and developing market-leading products.
But the risk is far outweighed by the potential reward. The concept has been proven, and the market is clearly paying attention. An investment today positions you to ride the wave of the Model S’ success in 2013, and also have a stake in future growth, once cheaper future models make the cost of buying a Tesla truly $500 a month.
The article Why Tesla’s “Bad” News Could Be a Buying Opportunity originally appeared on Fool.com and is written by Jay Jenkins.
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