Everywhere I look these days I see Tesla electric cars. On a Friday morning on Harry Hines in Dallas, two of them were following each other downtown. Turning off Horne Street onto Merrymount Road in Westover Hills, I spotted another. During a conversation with Ray Ellis’ daughter at Kwik Industries, she commented that there are now several Tesla electric cars in her neighborhood. And the Tesla’s not alone; its halo effect on other electric cars is noticeable. Sales of Nissan’s electric Leaf, also in part because of a major price reduction, have skyrocketed this year, up 230 percent though the first seven months.The hype and buzz about the Tesla’s success is unmistakably driving demand for all electric cars, regardless of who makes them. A few months ago I wrote in this column that other drivers literally laughed at me as I cruised around town in my own electric vehicle, but those days are over. Now everyone either wants to ask if I like my Mitsubishi or simply calls it cool. In California Fiat announced that it’s already sold out of the first year’s production of its electric 500, after just one story in Wired magazine detailed how this little Fiat is the “Tesla for the masses.” Honda did have to lower the lease price of its electric Fit out west, but that did the trick: A month or so later, Honda publicly apologized for not having enough of its electric-powered vehicles to meet the new demand. Granted, against the overall car market total electric car sales don’t amount to squat. But, if you compare today’s sales of electric cars in America against sales of the first generation of those cars in California in the 1990s, electric vehicle manufacturing is now a growth industry. Keep in mind, GM had a billion-dollar investment in its EV-1, but leased only 421 vehicles before, excuse the pun, pulling the plug on that program. At the time GM thought it was going to take the industry’s environmental crown with the EV-1; its failure burned GM so badly that, when Bob Lutz told CEO Rick Wagoner about his plans for the Chevrolet Volt — based on sales of Tesla’s first, Lotus-based electric car — Wagoner rapped back, “You really want to waste another billion dollars on a new electric car?”Feels Like a BubbleAll of this shows how automotive and business writers can get carried away with the hype on one vehicle, and that’s not good in the long run. After all, business columnists couldn’t wait to write that Tesla had finally turned a profit in both the first and second quarters of this year. That news had the effect of sending Tesla’s stock from $34.65 on March 1 to $92.59 on June 3. The big problem is that few columnists actually bothered to read the company’s official SEC filings for quarterly earnings. Those filings highlighted a few issues that are critically important to determining the corporation’s underlying value. One important fact is that Tesla isn’t using Generally Agreed-upon Accounting Principles, or GAAP, on the calculations required for the guaranteed buy-back programs on its Model S. And, while most did write that much of the company’s meager profits came, not from actually manufacturing and selling the Model S, but from selling zero emission credits to other auto manufacturers — or, in one case, cashing in a favorable hedge on international currency — one could see that in the first quarter Tesla actually lost over $15,000 on every Model S produced and sold. Somehow that fact got ignored in all the enthusiasm.That situation did not get much better in the second quarter earnings. To be fair, many manufacturers sell cars that they lose money on. And many importers actually lose money simply selling cars here in America; Mitsubishi lost almost a billion dollars in its first 20 years of selling its products in this country. But remember, stock prices are supposed to represent the corporation’s underlying value, and losing that kind of money on each Tesla built is at this point not encouraging. Why Gild a Lily?Then came the official government crash tests, on which Tesla claimed its vehicle received the highest score of any car ever tested — 5.4 stars, to be exact. By that time Tesla’s stock was $144.90 a share. But NHTSA immediately came out and said, wrong; our system rates cars to 5 stars, max, not the 5.4 stars Tesla claimed its car scored. Both entities had a point. While window stickers show only 5 stars max for crash testing, the real internal crash data shows that some vehicles are much safer than others with the exact same rating. The real story is that, once again, Tesla’s engineers managed to create a car that did so incredibly well in the crash tests that it should have put other automakers to shame. That’s a truly impressive story, so why diminish it with the “5.4-star rating” hype that the feds knocked down almost immediately?Then came the mother lode of silliness: Will Oremus of Slate magazine wrote an August 22 column headlined, “Tesla is Outselling Cadillac, Chrysler, Porsche and Mitsubishi in California.” Three days later Business Insider upped the ante, claiming that Tesla now controls 12 percent of the California luxury car market. Both claimed to be using the data provided by California New Car Dealers Association, and Business Insider actually reproduced one chart directly from that report, showing Tesla’s six-month sales at 4,174 in the Golden State, with only the BMW 5 Series and Mercedes E Class selling more. The problem is that it’s flat-out not true — as anyone who actually read that report could see.Both Cadillac and Chrysler outsold Tesla in the first six months, but Oremus was right in saying it beat Porsche and Mitsubishi. As for Business Insider, Tesla came in third in only one class of luxury cars — but in fact the BMW 3 Series, Mercedes C Class, Lexus ES and Lexus RX outsold them. Tesla does not control 12 percent of the luxury car market in California, just 12 percent of one class of luxury cars, that being Luxury Sport models. But sometimes facts don’t matter: Tesla stock went from $161.84 on the day of the Slate story to $169 on the last day of last month, or $20 billion in market cap. Based on the approximately $41 million in total profits for the first six months of this year, Tesla’s stock is trading for almost 500 times earnings, and Wall Street’s still pushing it. Yet Wall Street remains “slightly concerned” about General Motors’ stock valuation with billions in profits — and a P/E ratio of 12.21.Make Profit First, then PRTesla has created one incredible car, not just for Tesla but for the entire industry — and it’s changing everything. It’s legitimized every car company’s electric vehicles, forced other automakers to reconsider their vehicles’ crashworthiness, and set incredibly high standards for luxury styling and handling. Active embellishment of these facts is not needed, and it actually diminishes the company’s overall sterling accomplishments.None of this changes the fact that Tesla has to get away from losing $15,000 to $18,000 in actual production costs vs. sales price. Profit from one’s core business is what determines long-term shareholder value. It also decides the company’s long-term viability. © Ed Wallace 2013
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism. He hosts Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: email@example.com, and read all of Ed’s work at www.insideautomotive.com.