Silicon Valley News

Friday, November 19, 2010

Driving in the fast lane with Tesla

 Elon Musk, at front, the founder of Tesla Motors, recently gave Akio Toyoda, the president of Toyota and a licensed race car driver, a Tesla Roadster as a gift

If you've been nervously watching as the price of Tesla (TSLA) stock has spiked this month, worried that sitting on the sidelines could be a mistake, it may be time to put  your anxiety aside and get some skin in the game. Driving in the fast lane with the company's charismatic founder and CEO Elon Musk could be dangerous, but, as Lux Research analyst Jacob Grose put it, Tesla is an "important bellweather of EV technology," and a "high-risk, high- reward investment."

Since its inception, Tesla has burned through roughly $230 million in cash, while only generating $148 million in revenue. Losses are expected to continue as it prepares to bring its Model S to market in 2012. The basic electric sedan will sell for $57,400.

Prior to establishing partnerships with Daimler, Toyota (TM) and Panasonic (PC), Tesla was on the verge of insolvency.  Daryl Siry, formerly Tesla's top sales executive, was overwhelmed by the fiscal nightmare and left the company in late 2008. He was astonished by the ability of Musk to remain calm in the face of impending calamity.

"His tolerance for risk is beyond anything I have seen," said Siry. "At the point when I was nauseous in the situation we were in, he was in his element."

"People tend to overrate risk," Musk remarked at the time. "Elon has huge steel balls," his ex-wife wrote in her blog. "He truly does."

Despite the risks, I decided to put some skin in the game earlier this month. I added TSLA to my Silicon Valley 2.0 portfolio, which has outperformed the S&P by some 23 percent annually.

It's not just investors that feel compelled to make an important decision about whether or not to follow the Tesla lead as the electric car movement picks up speed. The heads of the major auto manufacturers are in that same boat. No one wants to be left behind, and some have boldly stepped forward to partner with Musk and Tesla.

Akio Toyoda, the president of Toyota, recently showed his mettle. Prior to a meeting at Elon's Bel Air home in April, Toyoda accepted an invitation by Musk to take his red Tesla Roadster for a spin. The 53-year-old Toyota chief, a certified race car driver,  had Musk's head pinned to the seat as he sped through the hills above Sunset Boulevard.

The business meeting marked the first time Toyoda and Musk met. The Toyota CEO was captivated by the Roadster, Silicon Valley's culture of innovation and, most of all, Elon Musk.  Four weeks later, Toyota signed a $50 million deal to partner with Tesla. When asked why he decided to collaborate with the startup, Toyoda looked at Musk and said," I love him." In honor of their new relationship, Musk gave Toyoda  a Roadster 2.5 as a personal gift at Tesla's showroom in Toyko earlier this month.

Tesla was founded in 2003. Nearly four years after the Silicon Valley startup pioneered the electric vehicle, General Motors (GM) decided it was time to follow suit. Based on Tesla's proof of concept, vice chair  Bob Lutz persuaded GM to develop the electric prototype Chevy Volt, which it unveiled in January, 2007.

Tesla has provided Daimler with the battery expertise it needed to allow the auto maker to develop its Smart and Mercedes-Benz A-Class electric cars. In return, Daimler has also partnered with Tesla, making a $50 million investment in the smaller company that was needed to help keep it afloat.


The key to success for Tesla and the electric car movement is the development of superior battery technology that is affordable. Tesla has the most technologically advanced EV battery pack. Panasonic recently made a $30 million investment in Tesla in an effort to establish itself as the top battery maker for electric cars.

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