Tesla should stop accepting subsidies says WSJ

ecomento.com ^ | February 25, 2015 | STEVE HANLEY 

The European edition of The Wall Street Journal has said in an editorial that Tesla Motors should stop accepting federal and state subsidies. “Last year Tesla made a roughly $150 million killing from selling ZEV credits. That’s up from $130 million in 2013, $32 million in 2012, and $3 million in 2011. All told in 2014 Tesla sold about $216 million in credits,” the newspaper said. It goes on to say,
Capitalism needs visionaries, but its reputation suffers when companies worth billions soak middle-class taxpayers for profits. Turn off the taxpayer tap, Mr Musk. It would earn you more friends for the long haul.
This seems a strange position for the Wall Street Journal to take. It never said a peep about the billions GM and Chrysler got after the global economic meltdown in 2008. Even though most of that money was eventually repaid, where was the Journal’s concern for the “taxpayer tap” then?
And it’s not like Musk and Tesla did anything to create these taxpayer financed schemes. The state and local governments laid out the rules and Tesla found a way to make a lot of money by playing according to those rules. The governments involved set out a lovely pie of money and said, “Oh, won’t someone come and gobble up our lovely pie?” Tesla did. Get over it. Move on.
Many stock analysts have frankly been stunned by Elon Musk’s assertions in a conference call with investors last week that Tesla would grow by 50% a year for the next 10 years and be worth as much as Apple in 20 years. Several wonder if Musk has gone off the deep end.
Gadfly Morgan Stanley analyst Adam Jonas has written an article entitled “Tesla Pushes The ‘Insane’ Button.” He writes, “Seems Tesla is preparing to be a much larger company than we have forecasted, leaving us with nervous excitement.” Jonas says Tesla is targeting capital spending of $1.5 billion in 2015 – nearly double his expectation and up 50 per cent year to year. He says this level of spending reflects a company with ambitions to achieve sales of at least 500,000 by 2020, not the 295,000 he’d expected:
The assumptions in our earnings model seem to be at great philosophical odds with Tesla’s much more ambitious growth aspirations. When thinking about the share price development, the key question we are left with is whether investor appetite can keep up with Tesla’s growth journey and the alignment of forward looking expectations with the capital markets, a balance so important to firms at this early stage of development.
Another brokerage firm sees things differently. Evercore ISI is still positive on Tesla for the future, saying there are 6 reasons for its bullish attitude:
Less exposed to market risk than peers, as global demand will exceed supply.
Protected against industry risk because of its unique business model and vertical integration.
Market leading product with no obvious competition. Substantial brand equity, through product and innovation.
Equity certain to grow as it enters new markets and has new products.
Government CO2 rules a tailwind for it, a headwind for competition.
“The factors in Tesla’s favor are both powerful and unique to Tesla. We see merit in allocating capital to a leader in the technology of the future,” Evercore ISI analyst George Galliers says.
Elon Musk is nothing if not brash. His style and his business practices have discomforted many established leaders in the automotive marketplace. Perhaps it is no wonder that he should do so in the financial markets as well. Whether you decide to double down on Tesla stock or take your gains and get out, there is a stock analyst out there who will applaud your decision.
The one thing to keep in mind with Tesla is that the capital markets are confronted with something quite out of the ordinary here. All anyone can say with certainty is that there will be winners and losers ahead. Invest wisely.