First published in the Quoted Cleantech Newsletter December 2010. Copyright Cleantech Investor Ltd 2010
Interest in electric vehicles is set to take off around the world as major, traditional motor manufacturers like Chevrolet, Nissan and Toyota launch their own marques of electric cars. But investors looking for a pure play electric vehicle manufacturer need look no further than Tesla Motors, which floated on NASDAQ this summer.
Founded just over seven years ago, Silicon Valley-based Tesla today boasts that it makes the best electric cars and electric powertrains in the world.
The company’s flagship product is its ‘Roadster’ sports car, the first version of which was launched into the market in 2008. Since then, more than 1,300 Roadsters have been sold in over 30 countries.
Although Tesla sells the Roadster as an environmentally-friendly form of transport, another key selling point is the hassle-free nature of electric cars. While vehicles that rely on the internal combustion engine require trips to the petrol station, routine oil changes and other frequent maintenance connected to the petrol engine, the Roadster driver simply has to charge his vehicle’s battery at home overnight. The car has a driving range of 250 miles on a full charge, and the charging cycle can be as little as 3.5 hours depending upon the power connection.
Since the Roadster retails for more than $100,000, the market for the car is limited to high-net-worth individuals.
Therefore, in 2012 Tesla plans to launch the lower-priced Model S, an electrically-driven sedan that has a range of up to 300 miles, a top speed of 120mph and an acceleration of 0-60mph in 5.6 seconds. Furthermore, the Model S can be fully charged using Tesla’s 45-minute QuickCharge technology, and its battery can be swapped in just one minute.
A key component of Tesla’s electric cars is the battery – which Tesla describes as being the result of innovative systems engineering and 20 years of advances in lithium-ion (Li-ion) cell technology. While nickel metal hydride (NiMH) batteries are commonly used in hybrid cars, Tesla says a 56 kilowatt-hour NiMH battery pack would weigh more than twice as much as the Roadster’s battery.
Instead, Tesla’s Li-ion battery cells not only significantly decrease the weight of the Roadster pack, but they also improve acceleration and range. An additional feature of Li-ion chemistry is that there is no need to drain the battery before recharging because there is no ‘memory effect’. Roadster owners can simply top up the charge every night, no matter how full the battery is.
Almost 6,900 Li-ion cells, sourced from what Tesla describes as “top worldwide producers”, are used in the Roadster battery pack, which employs a proprietary liquid-cooling system to maintain appropriate cell temperature levels – important for maximising battery life and optimising performance.
The company also claims its vehicles are engineered so that they can plug into any electricity outlet “anywhere in the world”.Recently reported third quarter results showed that Tesla increased its revenues during the three months to 30 September by 10% over the previous quarter to $31.2 million. The firm’s gross margin improved to 30% (compared with 22% for Q2 2010) and Tesla’s net loss fell to £34.9 million (Q2 2010: $38.5 million loss).
Tesla also reported that orders for new Roadsters had increased by more than 15% over the previous quarter. Meanwhile, the firm completed the purchase of its automotive manufacturing facility in Fremont, California, for $42 million. Formerly owned by New United Motors Manufacturing, the plant will become the future home of Tesla’s Model S production.
Tesla has set itself the goal of completing the first ‘alpha’ prototype of its Model S car by the end of this year. The company has also been testing its Model S prototype powertrain for several weeks, with “positive results”.
In anticipation of fast-increasing demand for its cars, Tesla has already opened stores in 15 countries, including ten in Europe and four in the Asia/Pacific region. There are also 16 stores across the US.
Tesla’s well-received IPO in late June raised $184 million net of expenses. More recently, in November, Panasonic Corporation – a leading provider of battery cells as well as a diverse supplier to the global automotive industry – invested $30 million in Tesla through a private placing arranged at $21.15 per share.
While Tesla’s current battery strategy incorporates proprietary packing using cells from multiple battery suppliers, the company has selected Panasonic as the preferred Li-ion battery cell provider for its battery packs. Tesla’s management sees the investment from the supplier as a major vote of confidence in its technology and business model.
"It is an honor and a powerful endorsement of our technology that Panasonic, the world's leading battery cell manufacturer, would choose to invest in and partner with Tesla," said Tesla CEO and cofounder Elon Musk. "Panasonic offers the highest energy-density cells and industry-leading performance with cutting edge nickel-type cathode technology. We believe our partnership with them will enable us to further improve our battery pack while reducing cost."
Meanwhile, Tesla has also scored a deal with another major Japanese company. Toyota Motor Corporation is paying Tesla $60 million for the development services connected with a validated powertrain system that will be integrated into an electric vehicle version of Toyota’s RAV4. In July, around the time of Tesla’s IPO, Toyota bought $50 million of Tesla’s common stock in a private placing.
Given that Tesla is showing the rest of the motor manufacturing industry the road ahead when it comes to electric vehicles, it will be interesting to see how long the $3 billion market cap business remains independent.
Market: NASDAQ
Symbol: TSLA
Price: $32.35
Market cap: $3bn
12 month high/low: $36.42/$14.98
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