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Sell Ford, Buy Tesla on Growing Income Inequality

Written by: Rocco Pendola 05/10/12 - 8:20 AM EDT
Tickers in this article: TSLA F

Even though Tesla missed estimates for the quarter, investors ran the stock up on word that release of the company's second electric vehicle, the Model S sedan, is not only on track, but ahead of schedule. It didn't hurt that Tesla raised guidance on anticipation of deal with Daimler to produce a Mercedes-Benz EV.

My bull case on Tesla has always focused on three things:

  • Tesla's ability to build a revenue bridge between models by developing EVs for other companies, such as Daimler and Toyota(TM)
  • The existence of that revenue as an additional stream of income during periods of core EV sales
  • Tesla's prime and well-positioned target market

    • As fellow TheStreet contributor Anton Wahlman notes people who buy Tesla EVs come from society's upper crust:

    Before 2012 is over, almost every single prospective buyer of a premium performance car located in Silicon Valley will be getting in line for the Tesla Model S. Tesla already has close to 10,000 deposits -- admittedly fully refundable -- from around the world.
    Assuming no cancellations of the deposits, Tesla is sold out in terms of production capacity until April or so -- of 2013.

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    Exactly. It's well-to-do types from places like Silicon Valley, San Francisco and Southern California who will fork out more than $50,000 for a Model S, just like they did for Tesla's inaugural $110,000 (sold-out) Roadster.

    Rough and incredibly conservative math (because the cars cost more when you do not factor in EV tax incentives and add charges for battery upgrades and other features) shows us that at $50K a pop, a run of 10,000 Model S EVs brings in $500 million in revenue. To achieve this level of success, Tesla does not have to concern itself with a very large portion of the population. It does have to appeal to and strive for a price within reach of Everyday Joe in Anytown, USA.