Propelled by its first-ever quarterly profit and raving reviews from Consumer Reports for its Model S, Tesla Motors (NASDAQ: TSLA) sped up its capital-raising efforts to quickly expand its cash reserve by over $1 billion from sales of new shares and convertible notes to both equity and credit investors who seem to be riding on the latest round of market enthusiasm about the company's electric car. The fact that Tesla sold more debt than stock by a three-to-two margin also points to the company's growing self-confidence. But investor excitement and company certitude must be eventually met by strong consumer desire that may not fully emerge till further down the road.
Businesses in their early stages don't normally use debt for capital injections unless they believe that near-term sales can bring in enough cash flow to meet ongoing debt obligations. It's finance 101: expecting stable cash flows, companies would not use equity financing as it requires handing out bigger shares of their sure earnings to equity holders for the higher risks they bear.
With anticipated cash flows, companies would favor debt usage so to pay out only smaller cuts of their earnings to creditors in interest. It seems that with its $600 billion notes offering, initially slated to be $450 billion, Tesla now believes that its electric-car business will start generating steady revenue streams to enable it make periodic debt payments.
However, by most measures, electric cars have yet to run on a firmer ground, and it's still doubtful that they can ever achieve the commodity status of today's gasoline cars of the masses. It's admirable that Tesla has developed this first-class electric car that scores the highest among tested vehicles, including the gasoline-powered, on both mechanical handling and in-car amenities.
But ironically, Tesla has retained a luxury image of almost the Ferrari types, being more of a leisure road play for the well-haves, as opposed to an essential transportation tool for wider consumers. All technologies take time to develop and in the case of electric cars, the technology has certainly not materialized in terms of greatly boosting manufacturing efficiency, bringing down costs and most importantly, improving battery performance.
For those who can easily afford a high-priced Tesla car, or even its future cheaper version at $40,000, and use it for secondary purposes, it wouldn't mean much that how far its electric car can travel and how much time is needed to recharge. But reliability will always be the foremost concern for average consumers who can't afford too much compromise.
By that standard, electric cars might never make it to be the vehicle choice for daily transportation. Even at doubling Tesla's current per-charge travel distance of 265 miles, it would be still too much of a stretch for a Tesla car to reach between 600 miles and 800 miles during a full-day travel, easily achievable with a gasoline car.
What's holding back electric cars is not really the per-charge travel distance, but rather their long battery-charging time. No matter how much improvement on per-charge travel range, electric cars may never be on pace with gasoline cars without realizing an instant battery-charging ability. So far, all electric-car enthusiasts and investors can cheer for is the Tesla's so-called rapid 30-minute supercharge, good for 150 miles, the equivalent of about an hour of time for a full recharge.
Electric cars are not something new only now; they were tried but failed more than 100 years ago at the outset of the auto industry as electric power quickly diminished relative to the force of internal gas combustion. The battery technology has thus proven to be hard to crack over the years. Put it in perspective: even a single piece of traditional car battery loses its power over time and will no longer hold the charge beyond certain point.
So, what should be expected of the packs of hundreds and thousands of battery cells in electric cars? How long can the batteries last? Will they even be outlived by the car itself? It would add more costs to the expense of owning an electric car if owners had to replace the battery system once every some years. Potential issues like these may eventually drain off current exhilaration for electric cars. Challenges faced by electric-car makers do seem to be endless.
Topping off the challenges, supporters of electric cars and investors may want to finally ask this: what percentage of electricity from renewable sources goes into the use for battery charging? Even with solar-panel-generated electricity available at charging stations, on sunny days, home charging and charging occurring elsewhere may well consume electricity generated from traditional energy sources. So, how is it better to burn fossil fuels at power plants than emitting the same gas out of vehicles' tailpipes?
No wonder that some in the energy and auto sectors have been trying to promote natural-gas-powered vehicles to take advantage of this cleaner energy and its cheaper cost due to abundant supplies. Natural gas has already seen increased use in generating electricity at power plants. When and if most electricity is produced by natural gas, why having all the troubles to drive an electric car that requires the eventual burning of natural gas to provide electricity for battery charging? Why not use natural gas directly in natural-gas cars and instantly fill them up at a natural-gas-filling station?
Well, that's exactly what companies like Honda and Chrysler are doing. The two companies have started offering their respective natural-gas Civic sedan and Ram pickup to retail customers, facilitated partly by the over 400 natural-gas filling stations built by T. Boone Pickens' Clean Energy Fuels Corp. Of course, natural-gas vehicles have its own safety-related concerns such as potential leakage of the toxic gas and the chance of fire explosion in a crash. But it's more likely to devise techniques to resolve these issues than developing technologies to make electric cars practical and convenient.
While the current rise of Tesla shares presented a golden opportunity for the company to raise new capital, future direction of the stock is very much uncertain, given the still premature electric-car technology and potential competition from natural-gas vehicles. Investors don't pick side for or against electric cars based on social or political agendas; they choose investments on the business' financial merits.
Businesses in their early stages don't normally use debt for capital injections unless they believe that near-term sales can bring in enough cash flow to meet ongoing debt obligations. It's finance 101: expecting stable cash flows, companies would not use equity financing as it requires handing out bigger shares of their sure earnings to equity holders for the higher risks they bear.
With anticipated cash flows, companies would favor debt usage so to pay out only smaller cuts of their earnings to creditors in interest. It seems that with its $600 billion notes offering, initially slated to be $450 billion, Tesla now believes that its electric-car business will start generating steady revenue streams to enable it make periodic debt payments.
However, by most measures, electric cars have yet to run on a firmer ground, and it's still doubtful that they can ever achieve the commodity status of today's gasoline cars of the masses. It's admirable that Tesla has developed this first-class electric car that scores the highest among tested vehicles, including the gasoline-powered, on both mechanical handling and in-car amenities.
But ironically, Tesla has retained a luxury image of almost the Ferrari types, being more of a leisure road play for the well-haves, as opposed to an essential transportation tool for wider consumers. All technologies take time to develop and in the case of electric cars, the technology has certainly not materialized in terms of greatly boosting manufacturing efficiency, bringing down costs and most importantly, improving battery performance.
For those who can easily afford a high-priced Tesla car, or even its future cheaper version at $40,000, and use it for secondary purposes, it wouldn't mean much that how far its electric car can travel and how much time is needed to recharge. But reliability will always be the foremost concern for average consumers who can't afford too much compromise.
By that standard, electric cars might never make it to be the vehicle choice for daily transportation. Even at doubling Tesla's current per-charge travel distance of 265 miles, it would be still too much of a stretch for a Tesla car to reach between 600 miles and 800 miles during a full-day travel, easily achievable with a gasoline car.
What's holding back electric cars is not really the per-charge travel distance, but rather their long battery-charging time. No matter how much improvement on per-charge travel range, electric cars may never be on pace with gasoline cars without realizing an instant battery-charging ability. So far, all electric-car enthusiasts and investors can cheer for is the Tesla's so-called rapid 30-minute supercharge, good for 150 miles, the equivalent of about an hour of time for a full recharge.
Electric cars are not something new only now; they were tried but failed more than 100 years ago at the outset of the auto industry as electric power quickly diminished relative to the force of internal gas combustion. The battery technology has thus proven to be hard to crack over the years. Put it in perspective: even a single piece of traditional car battery loses its power over time and will no longer hold the charge beyond certain point.
So, what should be expected of the packs of hundreds and thousands of battery cells in electric cars? How long can the batteries last? Will they even be outlived by the car itself? It would add more costs to the expense of owning an electric car if owners had to replace the battery system once every some years. Potential issues like these may eventually drain off current exhilaration for electric cars. Challenges faced by electric-car makers do seem to be endless.
Topping off the challenges, supporters of electric cars and investors may want to finally ask this: what percentage of electricity from renewable sources goes into the use for battery charging? Even with solar-panel-generated electricity available at charging stations, on sunny days, home charging and charging occurring elsewhere may well consume electricity generated from traditional energy sources. So, how is it better to burn fossil fuels at power plants than emitting the same gas out of vehicles' tailpipes?
No wonder that some in the energy and auto sectors have been trying to promote natural-gas-powered vehicles to take advantage of this cleaner energy and its cheaper cost due to abundant supplies. Natural gas has already seen increased use in generating electricity at power plants. When and if most electricity is produced by natural gas, why having all the troubles to drive an electric car that requires the eventual burning of natural gas to provide electricity for battery charging? Why not use natural gas directly in natural-gas cars and instantly fill them up at a natural-gas-filling station?
Well, that's exactly what companies like Honda and Chrysler are doing. The two companies have started offering their respective natural-gas Civic sedan and Ram pickup to retail customers, facilitated partly by the over 400 natural-gas filling stations built by T. Boone Pickens' Clean Energy Fuels Corp. Of course, natural-gas vehicles have its own safety-related concerns such as potential leakage of the toxic gas and the chance of fire explosion in a crash. But it's more likely to devise techniques to resolve these issues than developing technologies to make electric cars practical and convenient.
While the current rise of Tesla shares presented a golden opportunity for the company to raise new capital, future direction of the stock is very much uncertain, given the still premature electric-car technology and potential competition from natural-gas vehicles. Investors don't pick side for or against electric cars based on social or political agendas; they choose investments on the business' financial merits.
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