Tesla: 100% Market Share in Silicon Valley [for new cars $100K and up]

NEW YORK (TheStreet) -- The plural of anecdote is statistics. There are lies, damned lies and statistics. So take what I am about to say for whatever it is worth. Maybe nothing. I own some Tesla (TSLA) stock, after all, just so I can go to the annual shareholder meeting, get a free coffee and be my usual pest.

You could argue that what I am about to present is the equivalent of saying, "I've never seen a non-Apple (AAPL) tablet out in the wild, so therefore..." -- and you would be right. But people are still justifying this kind of reasoning as one factor to consider when predicting the success of this or that gadget, operating system, etc.

So because this is the case in other cases, you will have to indulge me for committing this sin in this case now. The opportunity is simply too rich.

Tesla started delivering its all-electric Model S luxury sedan to consumers in the middle of 2012. By all accounts it appears to have delivered at least approximately 3,000 of them by year's end, and for 2013 the company has guided to 20,000 cars.

On the one hand, that's a whole lot of cars. On the other hand, it's like spitting into the ocean. There are over 300 million people in this country, and there are over 15 million cars sold per year in the U.S. Even at 15,000 cars per year, Tesla would constitute only 0.1% of the U.S. new car market. Obviously, an even smaller percentage of the cumulative stock of cars on the roads.

Here's the thing, though: This is still very early days for Tesla. It's like judging the prospects of the iPhone based on how many people bought the iPhone on that first day in June 2007. It told us nothing about the iPhone's success two, four or six years hence. It's hard to believe now, but for the iPhone's first year in the market, it was not considered to have had a meaningful quantitative impact in the market.

In the early days, a new product can sometimes take root in a very uneven pattern, geographically speaking. The Tesla Model S is an excellent example. There are multiple reasons for this:

Tesla had hoped to build 5,000 cars by year's end. Over the summer and fall of 2012, it became clear that it simply took an extra month to pull all the parts and manufacturing processes. Therefore, to maximize the probability of delivering at least half as many as cars -- 2,500 -- by year-end, Tesla focused on first delivering cars to people living as close to the factory as possible. Those would be the people who pick up at the factory, and where delivery otherwise can take place inside the San Francisco Bay area.

Yes, I know, Tesla still made some deliveries to other geographies, and some people -- such as some from Los Angeles -- picked up the car at the factory themselves. But Tesla focused on maximizing deliveries by Dec. 31, and that meant focusing disproportionately on people living within an hour or two away, driving-wise.

The pure electric car experience has a variety of known drawbacks, including initial purchase cost (battery) and relatively long charging times (30 minutes can give you no more than 150 or so miles, typically much less). One drawback that's not discussed as often is the impact of extreme climates.

In particular, an electric car is sensitive to cold weather. Why? In a petrol car, you obtain cabin heat from the engine's excess heat. You just pipe it into the cabin. You get a full effect after only a few short minutes, and it doesn't subtract from the car's efficiency in any meaningful way.

In an electric car, any kind of heat -- seat, steering wheel and cabin air -- will draw from the battery, and therefore subtract from the driving range. In addition, if it's cold outside the car must effectively "heat itself" in order to protect the battery, which will otherwise be partially destroyed if left in extreme temperatures.

This tells us electric cars are particularly inefficient in extremely cold climates. In very hot climates they are also a bit inefficient, but not necessarily much more than regular cars -- at least if you don't have them sitting in the extreme heat for too long.

The bad news here is a car such as Tesla won't sell as well in North Dakota or Finland. The good news is there are plenty of places where the temperature is nearly ideal for electric cars. Over 100 million people live in the U.S. sunbelt alone. One such ideal place is Tesla's home base, the San Francisco Bay area.

The two points above lead us to my main point with this article: Tesla's market share in Silicon Valley, in and near its home base in Palo Alto.

I have operated on most days for over a month on the central streets of Silicon Valley, where there is the most slow traffic of people going to restaurants, cafes, offices and shopping. I am an observant car nut, constantly scanning every single car that's parked or coming down the street. I can recognize every car model and year.

The $100,000-ish Tesla Model S competes primarily with other $100,000 luxury sedans. What does that mean? It means Mercedes S550 and BMW 750. That's the market segment. A $100,000 luxury sedan doesn't compete with a $40,000 car or a $20,000 car.

So the critical question is this: In the seven or so months since volume production began, what has happened to Tesla's market share in its target segment?

One way to find out is to count these new cars on the street. When you buy a brand-new 2013 model-year car, you get a dealer document that's pasted to the front window, which you exchange for the final license tags within 60 or so days.

As it happens, the last 60 or so days is the relevant time period for Tesla anyway, in this case. So this makes the case easy.

On the average day in the last month or two, I have seen at least a dozen Tesla Model S cars on the streets while hanging out in Silicon Valley -- every day -- increasing in frequency every few days.

The key point here is: How does this compare with Tesla's main competitors, the Mercedes S-class and the BMW 7-series?

In the last two months, I have not seen a single brand-new Mercedes S class or BMW 7 series. Not one. That's compared to at least a dozen brand-new Teslas every day.

You know what conclusion I draw from this? In a matter of only a few short months, Tesla has gone from 0% market share to 100%. Not 99%. 100% -- in these parts of Silicon Valley anyway.

I can hear the complaints and objections already. "That's anecdotal. Not enough sample size. You didn't look at every street 24/7. BMW and Mercedes sell their flagships somewhere."

The complainers would be right. But I'm also right. I'm not making this up. I'm only doing what analysts in New York are doing when they comment "When I ride the N.Y. subway, the only tablet I see is the iPad, no Android" -- or whatever the comparison may be.

What is the moral of this story? It is this: By my own account as an extremely observant car nut, Tesla now has 100% market share in its "home" market of some part of Silicon Valley. The fair climate makes it an ideal place for an electric car, but 100%? Seriously? Tesla isn't banking on getting even 20% of the $100,000 luxury sedan car market.

In other words, if Tesla can quickly get to 100% market share in Silicon Valley -- where over a million people live -- perhaps it can get to 50% or whatever other decent number somewhere else. Even 10% would be heroic. If Tesla gets anywhere close to a double-digit market share number, it will have been an epic success.

As of today, there probably aren't much over 5,000 Teslas on the road -- in the whole world. But it took only a few hundred of them to prove to me that Tesla is getting to 100% market share at its geographical tip of the spear -- Silicon Valley.

The beauty of an uneven distribution in the earliest phase of deploying a new product is that we can see much further into the future in at least some corner of the market. For Tesla, that future is in its home market, and Tesla's competitors -- BMW 7-series and Mercedes S-class -- had better watch out because the air just went out of their sales balloons.

"Tesla already got to 100% market share" -- now that's a headline you can take to the bank, unfair as it may be.

Huh? Where was I wrong?

> It is a fact that the damn thing is $100K. Well beyond most car owners ability to own. It is a taxpayer funded boondogle for rich liberals to ease their conscience.

> Did Tesla not receive the below referenced loan? And then went back to the trough for more?

http://jalopnik.com/5843937/tesla-motors-secretly-asks-for-more-government-money

Great. Then they will be paying that half a billion back real soon?

Gee, how much is that per car. Lets see — half a billion divided by 2000 cars. Do the math. Only in fantasy land would that be a good business prospect.

And guess what? The average person can't afford the damn thing.

Maybe the “investors” realize that it is a sweet deal when the taxpayers pay the bills. Its like free money because you just file bankruptcy if you can't pay the loan back. Just like Solyndra. And another half a billion is gone.

The whole electric car thing is a joke. It is an expensive ticket to no where. No one has mentioned that the electric car is powered by the power company which is in turn powered by nat gas or coal or nukes. A power distribution and power production system that is already maxed out.

What happens if everyone buys the snake oil and buy these cars and plug their Teslas into the “free” power grid? And what will the costs be to upgrade the power grid to accommodate electric cars? Trillions?

My reply to you was too harsh. I apologize.

But let me give you my perspective.

As for the loan, first. Tesla IS paying back the loan, all payments made according to agreement, what more do you want? There is absolutely no indication that this loan is in trouble. While I do not agree in principle with the government guaranteeing loans for private concerns, that is something that they aren’t taking my advice on. Meanwhile, as I said, Tesla is living up to the terms of the loan without question.

By the way your math - dividing the loan guarantee amount by 2000 cars must be meant as a joke.

You say that the average person can’t afford the damn thing. I don’t know if I am average or not, but I can’t afford half the damn cars out there. But I don’t begrudge them to those who can.

Your allusion to a Tesla bankruptcy is similarly way off the mark. Elon Musk has informed the market that Tesla will return a profit in the current quarter.

The electric car thing is NOT a joke. It’s not for everyone or every application, but a joke? Only to people who find virtually everything hilarious! I wish I had such a sunny disposition.

Your opinion that nobody understands that the power to recharge these cars comes from the power grid and therefore implies that a power plant somewhere is producing the power is incredibly insulting, and it’s just not true. It does not help you argument along at all to cast such absurd aspersions.

Look, the fact of the matter is this: Tesla is likely to eventually produce maybe 50,000 vehicles a year. This is sufficient for them to be profitable, but it is not a number that indicates an electric car takeover of the automobile market. That’s not likely to happen, now or ever. Meanwhile, if there are incremental demands on the power grid for more electricity to power electric automobiles, this increase in demand will take place so slowly that the grid will have no problem meeting it.

My advice to you is to put on the latest Walking Dead, relax, and not worry so much about other peoples choices.

> Paying the loan back. Half a billion dollars?! Plus, apparently another 300 million? When are they projected to that back. An honest answer would be appreciated. Five years, ten years, ... never? Just the principal is huge. That doesn't include any interest.

> Okay dividing the number of cars into the loan was silly. But apparently they are in-deep if they had to ask for another 300 million. My guess from this would be that they have already spent the first 400+ million. Yikes. And what do they have to show for it. 400 million isn't chump change. A sustainable business?

> Affordability. They had better mainstream the damn thing or things or else it will be a very expensive “luxury” car that only elite liberals can afford. An Edsel. Only it will be a waste of taxpayer's money.

> Charging electric cars. The energy has to come from somewhere. It is not produced from fairy dust. It is a basic law of physics.

As for new power capacity to support electric cars....it is virtually impossible these days to build power plants. Lets see — nukes, no way. Remember Japan? Coal? Forget it. Hydroelectric — absolutely not. Might displace some fish somewhere. Nat gas/fracking — the EPA haven't caught up with that yet. Wind/solar? Ya right.

And how long does it take for a new power plant to come on line? Five years, 10 years? Until power availability is addressed, it is a joke and apparently the people pitching electric cars either haven't considered this fact or if they have, then they are hoping that we will be too stupid to figure it out for ourselves.

At the moment, there seems to be literally no concern over Tesla’s ability to repay the loan, except maybe from you. Tesla has committed to the lenders to paying the loan off early as cash flow permits, and has publicly stated their intent to do just that.

I should think you would not be worried about affordability unless you want to buy one - but considering you hostility to the very idea of electric cars, I doubt that is your intent. But why are you concerned about other people’s buying decisions?

A waste of taxpayer’s money. I doubt that will be the case if your only concern is whether or not the loan will be repaid. My position is that the government has no business investing in private concerns regardless of whether the investment is a good one or a bad one. It’s just totally inappropriate, period. That includes direct investment, loan guarantees, I don’t care. Making investments in favored industries is not one of the enumerated powers. End of story.

I wouldn’t worry too much about the electric power plant situation, we’re already adapted. This is something I have a great deal of familiarity with having been in the business. Eventually, new capacity will be built, despite the environmental nutcases we have in this country who have wormed themselves into positions of influence. You are about right on your power plant timetable. ten years for design and construction is now the norm, even for a coal or oil fired plant. Dams and nuclear are a century, maybe. It’s a problem, agreed, but the link you are trying to make to electric cars is tenuous. It’s just not realistic.

As to your inquiry as to the repayment timetable. Apparently the original loan called for repayment in ten years, but Tesla intends to repay the loan within five years. Looking at the Tesla cash flow and forecast revenues and expenses over the coming five years, it should be a very straightforward proposition to repay the loan entirely within that time.

http://www.timescolonist.com/business/tesla-ceo-elon-musk-vows-to-repay-government-loan-in-half-the-time-required-1.81148

Half a billion or more dollars? That means that they'd need to be making some serious revenue to be able to pay it back. Intentions are one thing, reality is another.

Just my opinion, but it would have made sense for the feds to partner with an existing car company. That way they didn't have to reinvent the wheel. Pun intended. Existing supplier, existing and reusable parts, existing supply chain. Maybe they did that already with the volt. BTW, the volt is a heck of a lot more affordable and we know how much of a flop that has been.

Sorry — been fooled once before with solyndra. You'd think that the feds would be more cautious but they are “who cares it isn't their money.” A half a billion here a half a billion there. A situation that all VCs would to have — unlimited money and no risk. I could be wrong but I think that we agree here.

Why is it my business? Because I am a forced investor — I am a taxpayer!

BTW, I own a hybrid. And I considered the business side of it. Unlikely that I will make the ROI. But a hybrid is a heck of a lot more compelling than an electric car.

Power availability. Which state do you live in? CA had rolling black outs not too long ago. And during the summer capacity is at maximum. Here in CO, that is the case too. Okay, you can plug your car into the grid at night but according to the experts, the night time is when the grid resets since demand is less. Plug millions of loads into the grid at night and the grid doesn't have a chance to reset.

So two things are a must if all electric cars are to survive:

1. They have to be affordable. Not going to have much benefit if only 0.1% of consumers buy them.

2. Power availability. Both in charging stations and available power.

The Tesla offers none of the above and is only a taxpayer funded, ridiculously expensive, cool wizzy toy.