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Why Tesla Motors May End Up As Roadkill

David Olive, The Toronto Star

Tesla Motors has never turned a profit in its history as a public company. If the money-losing micro-automaker  flames out, it will be wiping out a staggering current market cap of $34 billion.

It’s difficult for conservative investors to take the likes of Elon Musk seriously.

Like many celebrity billionaires engaged in myriad activities, Musk is best-known for being well-known. If Tesla Motors Inc., the money-losing Palo Alto, Calif. micro-automaker that is the flagship of the Musk empire, flames out, Musk will be relegated to a footnote in auto history with Malcolm Bricklin. But not without wiping out a staggering current market cap of $34 billion. (All figures in Canadian dollars).

The financial media dote on Musk, however, chiefly because Tesla is a Nasdaq darling whose stock has soared 1,077 per cent since Tesla went public in 2010. The shares of the world’s top 10 automakers trade at an average price-earnings multiple of 13. The multiple for Tesla shares is about 400.

Yet Tesla has never turned a profit in its history as a public company. Musk’s best guess is that it will do so in 2020, 17 years after the company was founded.

One of the key things to appreciate about Elon Musk is that the South Africa native who studied at Queen’s University in Kingston, Ont., for two years before dropping out of Stanford University after two days is that he is a product of Silicon Valley.

For Valley people, failure is a badge of honour, of risk-taking élan.

The 43-year-old Musk is a serial entrepreneur, moving briskly from one start-up to the next. This traces back to the video-game software that a 12-year-old Musk, still resident in his native Pretoria, developed and then sold for $600.

Musk has since helped launch several ventures, including Tesla; a Web services firm; a leading solar-panel services company, SolarCity; and Space Exploration Technologies, or SpaceX, which builds spacecraft to supply the International Space Station and other clients. These firms are all based in Silicon Valley.

It’s Tesla that gets most of the attention. Tesla wins plaudits for its pioneering in all-electric cars. (Hybrids have two engines, one electric and the other gasoline powered.)

Tesla is also the first North American automaker to go public since Ford Motor Co. did so in 1956. It is named for Nikola Tesla, the brilliant Croatian inventor who championed alternating current over Thomas Edison’s fixation with the less stable direct current, but who died penniless and has enjoyed a cult following ever since. […]

Tesla’s workforce has tripled in only two years, to a current 10,161 employees. (Which calls to mind the quadrupling of Nortel Networks Corp.’s head count in the brief three years before its flameout in 2000.)

Musk calls the shots at three very different companies – in the renewable energy field, the nascent market for all-electric vehicles and in space travel. That’s an echo of BlackBerry Inc., which would not be in crisis had its two cofounders not taken their eyes off the smartphone market in the mid-2000s by chasing NHL franchises, among other distractions.

Even among bullish analysts following Tesla, it’s widely believed SpaceX, and not Tesla, is the venture Musk most cares about. SpaceX is the one company Musk founded on his own, and he has been its CEO for its entire existence.

Meanwhile, Tesla’s rivals are spending an estimated $36 billion on hybrids and all-electric vehicles, in order to meet stricter emission standards set by the U.S. and California governments. With its flyspeck revenues of $3.9 billion last year from selling a mere 31,655 vehicles, Tesla lacks the R&D, marketing and distribution heft to be anything more than a niche player. (Ford Motor’s 2014 revenues were $174 billion.)

Toyota Motor Corp., world’s largest automaker, has just rolled out its self-described “Tesla killer.”

The Toyota Mirai is powered by a hydrogen fuel cell rather than the hulking lithium-ion battery pack that powers the Tesla. Hydrogen-fuelled vehicles hold the promise of not only greater range (about 480 km between recharges) but just five minutes recharging time (compared with Tesla’s half an hour).

Tesla’s fate would seem to be roadkill or a merger.

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