Darryl Siry's Blog

TrueCar and the nutty world of state franchise laws

2012-01-06T17:15:00.000-05:00

If anyone feels that government bureaucracies are good at protecting consumer interests, they need look no farther than the state franchise laws governing automotive sales and auto dealerships.

A recent article in Automotive News (sub req'd) chronicles the latest chapter in what I see as the dealership lobby crying foul at TrueCar's service, which enables customers to get the lowest price by having dealers bid for their business. Lowest price wins. Nice win for the customer, and I suppose good for moving the metal for dealers who are OK with that.

I think I can communicate the bizarre world of franchise laws with a few select quotes from the article:

"The state laws in question were enacted in previous decades to protect interests of dealers and consumers. For instance, some states prohibit the use of the word invoice in advertising."

Makes perfect sense. The word invoice is very concerning to me.

"Also, some states ban bird-dogging -- paying a third party a fee that is results in a sale. Some states ban brokering, which is charging a fee to a retail customer to find and negotiate the purchase of a vehicle."

God forbid I would want to pay someone to do something for me that I hate doing and that they are good at.

Not mentioned in this particular article are other laws, which ban manufacturers from being directly involved in warranty work, ostensibly to protect the consumer from those nasty manufacturers but in reality it is to make sure the dealers hold on to those profits. Or the laws banning "internet sales."

While some of the laws genuinely are designed to protect consumers, too many of them are obviously designed to protect the interest of dealers at the expense of the consumer. It's an embarrassment.

Oh, did I tell you the one about the $2,100 quote for my "blown cooling system" on my BMW that was actually just a $2 bleeder screw?

Healthy, Wealthy and Wise

2012-01-03T06:35:00.001-05:00

Well, we'll see about that, but I have decided to wake up at 5:30 am everyday. The timing of this decision might make it seem like a New year's Resolution, but I don't see it that way because that would make it unlikely to stick. I see it more as one of the nice outcomes that come from a little downtime over the holidays.

Ben Franklin may have created the proverb of "Early to bed, early to rise, makes a man healthy wealthy and wise" but on reflection this morning it occurred to me that the inspiration was more likely James Altucher in this great post. (There is a lot of good stuff in that post and on his blog in general which has influenced my thinking. I suggest you read a post and I'd be surprised if you didn't find yourself reading many of them.)

So why am I waking up at 5:30 every day? I'm not quite sure, but I think it will lead to good things. I made sure not to resolve to do anything in particular with the added morning time. I just want to see where it leads. So far I've written a blog post (something I rarely have time to do but enjoy very much) and I am watching the BBC because they are all awake over there.

Tesla in 2012: When Vision and Reality Converges

2011-12-21T11:17:00.000-05:00

2012 will be a very interesting year for Tesla, particularly from the point of view of an investor. I'm not talking about the obvious scheduled launch of Model S in mid-2012. I'm talking about the fact that as Tesla moves toward production, the vision of the company, as communicated in these past years, will ultimately have to converge with reality. Tesla has done a good job communicating a clear vision for what they plan to do. The problem with communications is that you strive to boil things down to a simple and powerful message, and the more you succeed in doing that, the more room you leave for disappointment or confusion when real data points start to emerge.

In the last few years, the majority of "normals" out there have heard the following about the Model S (UPDATE: I've added a web archive photo of how the Model S was advertised courtesy the teslamotorsclub forum):

$49,900
300 miles range
0-60 in under 6 seconds
45 minute charge
7 seats

Combined with the car's great looks this is obviously a very compelling offer, especially when compared to the nearest "competitors" in the EV space - the Nissan Leaf and the Chevy Volt.

Last night, Tesla announced pricing and options. To those who have been watching this very closely, there aren't that many surprises (aside from some options like the tech package that people thought should be standard.) To a large number of people looking at the details for the first time, reality (as defined as a "$50,000 performance EV") now looks like this:

$49,900
160 miles range (at 55mph)
0-60 in 6.5 seconds
4 hour charge
5 seats

In my opinion, that is actually a very compelling value proposition as well, unless you have grown accustomed to the much publicized set of features and prices. So there will inevitably be a great deal of consternation and anger among those customers who didn't read the fine print. The same thing happened when the Roadster was finally priced. Ultimately, the anger subsided and the Roadster settled into its own version of reality. Instead of a $100K car selling 1,800 units annually in the US, it is a $125-140K car selling 600 units annually globally.

Incidentally, if you add the options you might have thought were standard, in particular the tech package, leather seats, and metallic paint, the price you will see on the sticker of the car will be about $64,400. Note I added the tax credit back in and also $1,000 destination charge, which I am just guessing.

If you further load up the base 160 mile model with some of the features that have been highlighted in much of the press coverage and events (adding 21" wheels, panoramic roof, upgraded sound, 7 seats, active air suspension, 20kw charger, high powered connector) your sticker will say about $76,050 for the base car that will go up to 160 miles.

If you want 300 miles with that, the sticker will say $96,050.

If you want Porsche 911 acceleration of 4.4 seconds, your sticker will say $103,800.

But you know what? That's a hell of a car even for $103,800! It may surprise some that the 2012 BMW M5 is going to cost about the same as that.

The convergence of vision and reality is playing out in two ways today. First is a messaging issue and some angry customers. They will get over that as they did when Roadster pricing was announced (albeit with some level of reservation cancellations and increased mistrust.)

The more meaningful issue is that 20,000 units is starting to look a lot harder to achieve at the actual level of pricing that was revealed today. The stock is down 5% as of this writing, but I think investors might cheer up when they consider that the 25% gross margin target is looking a lot more achievable. It will all boil down to how many units they can sell on a continual basis at these prices.

The next place where vision and reality will have to converge is in the cost of goods sold, which directly relates to gross margin now that pricing has been pinned down. Tesla likely has good visibility into supplier pricing by now but the actual COGS can't really be known until they are in production for several quarters.

After that, the final convergence of vision and reality will be sustained annual unit sales (after the pipeline is empty). That won't be known until mid 2013. Stay tuned!

Shuttering NewsBasis

2011-12-08T14:57:00.001-05:00

Yesterday I wrote a post on the NewsBasis blog notifying folks that the service will be shut down December 16th. You can read more about it there, including the fact that I hope to start posting some things here about my experiences as a founder and lessons learned.

MS downgrade of TSLA reveals wacky world of sell side analysts

2011-12-08T14:46:00.001-05:00

Today Morgan Stanley downgraded TSLA from "Overweight" (Buy)with a $70 price target to "Underweight" (Sell) with a $44 price target. How do you slap a sell rating with a $44 price target on a stock trading at around $35?

South by Southwest Homesick Blues

2011-03-14T19:35:00.000-04:00

A day in the life of an early stage startup

2010-09-24T10:31:00.001-04:00

The following question was posted on Quora and I saw it at the end of the day as I was winding down. The question was very relevant to me, and I wanted to share my answer here on my blog as well. I will also be starting to post more startup related topics and fewer cleantech related topics, as that is where my attention is these days.

From Quora:

What does a day in the life of a SaaS startup CEO/founder look like post product-launch?
Especially when the founder is scaling up the business.

Wow this question is very relevant to me. Good on you, Quora. I will try my best to capture a day in the life for me but obviously everyone is different. Lets actually start before I wake up. I dream about the business, usually about some challenge or problem we want to solve. If it is a good night's sleep I actually generate insights and ideas I think might be useful and I wake up energized to try them or tackle whatever challenge. A bad night's sleep means that my dreams are more about what might go wrong or negative feelings. Then I wake up grumpy and annoyed. Sometimes I wake up in the middle of the night and then I have to decide to go back to sleep to make sure I am rested or just get up and do something productive since I'm up anyway.

Once I roll out of bed and go into my home office, I tackle whatever customer issues have come up and emails. We are 2 people and we have a lot of east coast customers so even if I'm up at 6 the day has started over in NY so stuff is already happening.

I keep a list of all the discrete tasks that I need to accomplish in a separate project in Pivotal Tracker. I'm sure this will annoy any agile developers out there to no end, but since we use it for development tasks it is convenient to keep my "to do" list there too. The problemis that the things I have to simultaneously deal with every day are not remotely serial tasks that can be prioritized simply. I wear so many hats and my list of to-dos is vastly longer than I can hope to get to so every day is an exercise in getting extremely focused on what will make the most difference. The problem is there is no easy answer to that.

The reason it isn't easy is that for an early stage company everything needs to be done right now, but that isn't possible. I focus a lot on customer acquisition which is critical, but customer acquisition is a combination of many things. There are the tactics of trying to get people to sign up (marketing and sales stuff) and then there is obsessing about all the shitty UX aspects of your product that you know are preventing people from making it to the next step in the funnel or prevent them from enthusiastically recommending to a friend. Even if I make things much better it's still way worse than we want it to be ultimately. This sounds negative but its not - I think its an important part of having the drive to continually improve things.

We are still in the rapid prototyping and test/learn phase, so I obsess about what features we could develop that would reduce friction in the system or increase virality or utility. We also think about what we can remove or simplify. I meet with my CTO at 10am in a cafe somewhere and I bounce my ideas of him to get a sanity check since I think that it is dangerous to follow the siren call of "if we only built this then more people would sign up and use our service". After he and I have had our morning pow-wow I go home and get back into execution mode. We interact for the rest of the day over Campfire.

I try to make sure that every day I accomplish one or more major tasks that relate directly to customer acquisition or otherwise driving brand awareness or user growth. If I don't I feel that I accomplished that then I am not a happy camper in the evening which is my family time. The problem is that the more focused you get on execution the harder it is to pull up and really thing strategically about what direction you are going and how you should be doing things differently. Until you have achieved real product/market fit and just need to scale, I think its important to spend a good amount of time thinking about how the business needs to evolve and adapt. I have no problem with strategic thinking but I have to get over the fact that stepping away from the computer and spending time thinking and pondering and not "doing" is not "being unproductive."

At some point I try to shower and shave, especially if I will be seeing other humans that day. Shaving is highly overrated.

By 6 or 7pm I try to start winding down and focusing on tasks that are repetitive or boring but serve to clam me down in a zen sort of way (think of sorting or de-duping lead lists or something along those lines). I do this because I want to ease into a more calm state of mind before going upstairs and spending time with my wife and 3 year old daughter before she goes to bed.

Evenings are for me and my family, and while my phone or iPad is always nearby, I really try to just veg out and recharge. Belgian beer is a critical component of this. I tell myself that when we close the Series A things will settle down. I know thats a load of B.S., but its nice to think about anyway.

Tesla jabs GM, may trademark very insidery term

2010-09-01T19:29:00.000-04:00

I received this forwarded email with a concise comment from a prominent journalist at a major news organization:
_______________________________________________________________________________________

WTF?

From: Khobi Brooklyn [mailto:XXXXXXXXX@teslamotors.com]
Sent: Wednesday, September 01, 2010 12:21 PM
To: Khobi Brooklyn
Subject: Tesla statement on GM's attempt to trademark "range anxiety"

Statement in response to GM’s attempt to trademark the term, “range anxiety” from Tesla VP of Communications, Ricardo Reyes:

By all means, GM can have “range anxiety.” To Roadster owners, the term is as irrelevant as “gas stop” or “smog check.” We are, however, looking into trademarking “Tesla grin.”

Khobi Brooklyn I TESLA MOTORS
office: 650 XXX XXXX I cell: 415 XXX XXXX
www.teslamotors.com

Morgan Stanley Contradicts Tesla

2010-08-10T11:31:00.000-04:00

Morgan Stanley's first coverage report was a fascinating read last night given Tesla's rebuttal to my analysis of the ZEV credit market and the potential impact to EV startups. It also highlights Tesla's bizarre PR approach to critical journalism.

Morgan's analysis related to the ZEV credits reads like my original reporting in Wired verbatim:

"In 2009, ZEV credits sales totaled $8.2 million (7.3% of total sales and 86% of gross profit). For 2010, we forecast ZEV credit revenues of only $2.5 million as more sales are outside the US.

For the Model S, we forecast ZEV credit revenues of $5,000 per vehicle but recognize that there is uncertainty as Tesla has not finalized contracts to sell ZEV credits for the Model S. In our 2014 base case, ZEV credits account for 2.8% of revenue, 13.2% of gross profit, and 57% of operating profit. Because ZEV credit sales are nearly 100% margin, Tesla could have an EBIT margin advantage of 1.5–3.0% compared to traditional automakers."

and a little later they confirm it is Tesla who provided this guidance:

"Our forecast of $5,000 per Model S sold in the US is based on management’s guidance. If Tesla cannot sell ZEV credits, our EBIT margin forecast would fall an average of 2.4% per year."

If you read Tesla's rebuttal to my original post, where I sourced a morgan stanley analysis from the roadshow that I saw myself, they say that they never said the $5,000 figure, and imply that their profit margins are not dependent on ZEV credit numbers. This flatly contradicts what Morgan Stanley (one of their underwriters) just released in a report.

The one thing I appear to have gotten wrong in my reporting is my failure to point out that the ZEV credits apply only to about half of their projected volume, but on the other hand I used Tesla's own estimates for operating margin which are optimistic in drawing my conclusions. Morgan stanley believes their operating margins will be about half of what they project, so the bottom line potential earnings impact if ZEV credit value goes to zero is still 50% in the Morgan Stanley scenario.

All of this highlights what I consider a compulsive desire for Tesla management to rebut anything said in the press that can be interpreted as critical or unfavorable. The fact that they would do so on a day when all of the analysts who they have been working closely with came out with reports that reinforce my original point is mystifying.

My guess is that their rebuttal post will do more harm than good as they find themselves having to explain the inconsistency to the analysts they have been working closely with to provide "guidance" on financial projections. The easy solution to this would be for Tesla management to be transparent about what they believe the market for ZEV credits will look like in the 2012-2017 timeframe so the various analysts covering Tesla can reflect this in their models.

Tesla's rebuttal to my ZEV credit analysis

2010-08-09T19:26:00.000-04:00

Here is a link to Tesla's rebuttal to my ZEV credit article, where I point out that the value of ZEV credits will likely crash and that may present additional chalenges to profit margins.

Tesla has a record of being combative with journalists who offer criticism or unfavorable opinions, so I was pleasantly surprised that there were no obvious ad hominem attacks in the rebuttal. Actually I was disappointed.

Its a long rebuttal, but I can sum up their argument for you:

1) We didn't say what your source heard us say on a conference call (which was corroborated by what another source told me)

2) Your analysis of our projected gross margins (which came from theTesla roadshow) is wrong but we can't say why its wrong because we don't make forward looking statements. But you're wrong.

3) You were wrong in your analysis because we are only going to sell a fraction of our cars in ZEV states, which means the $5,000 per car figure (which we never said) is even less attainable than you thought (you douchebag.)

So I ran it by my sources and one of them said the following, which I think sums it up quite nicely: "So if I hear it right, they are willing to talk in general terms that could be misleading as long as no one questions the assumptions. And then if someone does they will defend themselves vehemently?"

[Wired] Tesla Subsidy Vanishing Amid Electric Vehicle Boom

2010-08-02T13:31:00.000-04:00

Here is a link to my latest article on Wired.com.

Its always tricky to write about anything related to the CARB ZEV mandate, since it is probably the most opaque and confusing reg in the world (ok, maybe that is hyperbole, but it's pretty accurate.)

In the past year I've spoken to dozens of analysts and investors and not a one had a good understanding of the reg. Ironically Automotive News ran an article today that gets it all wrong too (sub req'd)

GM can't catch a break

2010-07-29T14:45:00.001-04:00

Maybe I have a soft spot for GM because everybody seems to like to shit on them and they are actually great folks and great engineers who have worked hard and transparently to deliver a very unique technology to the market when they said they would.

Granted that I would have like to see them be more aggressive on pricing the Volt, but they do offer an extremely competitive lease at $350/mo - the same as the LEAF.

But the flurry of press about the announcement has been mixed and some of the commentary is downright silly. The following quote from Jessica Caldwell, industry analyst for Edmunds.com, deserves to be called out because of the inherent contradictory nature of blasting GM for "teasing the Volt" for so long before launching and then in the same breath blasting the price by comparing it to a vehicle that doesn't even exist yet, much less have a firmly established price.

"If GM had launched the Volt when they started teasing us years ago, it could have successfully commanded a hefty price tag," Caldwell said, noting that there now are a wider range of vehicles in the Volt's price range with improved powertrain technology and packaging. "Tesla's Model S will start at $8,000 more and is better targeted at people who can afford to pay $40,000-plus on a vehicle."

Apparently Jessica thinks that the Model S exists today, and is priced at $49,000 before the Federal Tax Credit, and she doesn't mind being teased for years unless its GM. Pricing has a nasty habit of creeping up when you actually realize how much the car costs to make.

The Volt is priced competitively with the LEAF when it comes to leasing, which is what everyone should do anyway. The Model S, when it is finally produced in 2012 at the earliest, will run you about $75,000.

The full article is here.

Posted via email from Darryl Siry's posterous

Chevy Volt matches Nissan LEAF pricing

2010-07-27T14:39:00.001-04:00

Chevy announced pricing for the Volt today, and while all the articles are focusing on the $41,000 MSRP vs the LEAF at about $32,000, the real headline is that the lease they are offering is exactly the same monthly cost of $349. The down payment is $500 higher, but you don't need to install a level 2 charger so lets call it a wash.

What makes this so interesting is that we will see how the pure BEV architecture fares against the EREV (extended range electric vehicle), since the cost to own is essentially the same if you lease.

Aside from the major difference of the drivetrain approach, the other major differentiators are brand and styling (and possibly warranty). Neither car is a clear winner on styling and Brand is a very personal thing.

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$TSLA short interest large out of the gate

2010-07-27T10:54:00.001-04:00

In a previous post I described the response I was hearing to the Tesla roadshow as highly polarized - people seemed to either be very bullish on Tesla or very bearish. No one seems to be sitting on the fence. To get the IPO completed successfully, the bears are irrelevant: you only need a certain number of people who are excited to get the deal done.

What happens in the market after shares are floated is a different story. People bearish on Tesla can bet against the stock in a number of ways, betting that the stock price will go down and earning a profit on the downward move.

There are several indicators that one can look for to get a sense for the "short interest" on $TSLA, and the three or four data points I have seen in the last days supports my theory that you have a large number of bears on one side and a lot of bulls on the other.

First, the NASDAQ reports that there are 5,642,448 shares held short. The total shares floated in the IPO were 15,295,000 assuming underwriters exercised their entire over-allotment option. That means 38.6% of the shares out there are held short.

The demand for shares to borrow to take a short position is very high, as indicated by the interest rate that is being quoted to those who want to borrow shares. This data can't be found easily on any website, but two quotes I have heard recently are around 15% and around 40%. These are huge numbers, and indicate that there are a lot of people eager to short the stock. For someone to borrow shares at that high an interest rate means they need to have the stock go down more than that number (pro-rated for the time period) before they earn a profit.

The number of put contracts sold outnumbers the number of call options by over 3 to 1. This means there are a lot more people in the options market betting that the stock will go down in the future than are betting it will go up.

In spite of all the bearish indicators, TSLA stock remains a good 22% above its high IPO price - trading at $20.89 as of this writing. That's all the evidence you need that there are a lot of people equally as bullish on the stock. It also means that TSLA will continue to be a volatile stock.

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Barclay's upgrades $AONE - bullish on Fisker

2010-07-26T12:07:00.001-04:00

AONE is up 15% today on an upgrade from Barclay's, which also bumped the price target from $12 to $14.

Read part of the Barclay Analyst's rationale below:

"Several positive pot'l catalysts on horizon: (i) Fisker and heavy-duty customer ramps appear to be on schedule - checks suggest Fisker could start commercial production of 100-200 vehicles in Dec, looking to ramp to 1K units/mth run-rate by end Feb'11 (well ahead of investor expectations)."

Apparently the Barclays analyst read Autobloggreen.com. Either that or he "checked" with the company itself, which of course will say that everything is on track, until it isn't.
So much of AONE's prospective value is tied up in the volume that Fisker will deliver over the next years, as they represent the largest PHEV program that AONE has locked down. What is interesting to see is that very few of the analysts covering AONE make much effort to discount the execution risk of the Karma program and the volume expectations.
I think it would be wise for anyone advising investors in AONE to recommend a fair value based on the Fisker's current stated launch date and volumes. Then provide a downside scenario. There is no upside scenario because the manufacturer's statements are the upside scenario.

So my question to the Barclay's analyst is what do you think the fair value of AONE shares are if Fisker enters production in Spring of 2011 and is able to support volumes of the Fisker Karma in the 3 to 4000 unit range over the next years?

I'm not necessarily picking on Fisker here - all startup manufacturers of EVs/PHEVs will always present the most bullish estimate of volumes before they actually bring product to market for the obvious reason that doing so presents the best picture of their business. It should be the role of analysts to do the work to come up with a reasonable discount for those company statements, or a rationale for why they support it.

In my opinion, the key factors which cause me to discount Fisker's projections are:

1) They have not yet demonstrated a real production intent prototype with production intent parts. This is a very big concern that can't be allayed with the waving of hands and PR statements.
2) They only locked down a battery supplier in February, when AONE bought the contract out from under HEV. I believe they have still not finalized a volume production partner for motors, which are an important piece of the puzzle.
3) The Karma's current projected price is around $90,000. The market for $90,000 cars is quite small. The market for PHEV $90,000 cars is a smaller portion of that.
On the plus side,
1) I continue to believe that the market for PHEVs will be bigger than the market for EVs in the short term, even though the media attention seems to favor pure BEVs.2) They already have 40+ dealers who are eagerly awaiting product to sell to their customers.3) The car is very pretty, which matters a lot.

Posted via email from Darryl Siry's posterous

Meet Toyota's Point Man for the Tesla RAV4 conversion project

2010-07-17T18:15:00.001-04:00

One of the more fascinating characters I've met in the EV world is Bill Reinert. He is outspoken about his opinions and often plays the skeptic to others' unbounded optimism about the market potential for EVs.

In the past, he has been openly critical of Tesla Motors' battery approach (the use of thousands of interconnected commodity cobalt oxide cells). He is also now the man in charge of the Toyota end of the Toyota/Tesla RAV4 EV conversion project (from what I hear).

That's what happens when your top boss takes a shine to Tesla. Will Bill Reinert be a convert to the Tesla technological approach, or will he be a reluctant company man? The back story on this is fascinating, and I can't wait until the stories are told in the course of time.

If Akio Toyoda really wants to drive Bill nuts, he'll make him collaborate with Shai Agassi and Better Place next.

Photo is "courtesy" of Automobile Magazine - I put "courtesy" in quotes because I just lifted it from their website. Hopefully they don't mind since I link to preston Lerner's fascinating profile of Bill here. You should read it!

Posted via email from Darryl Siry's posterous

Chevy Volt battery warranty sets a high standard

2010-07-15T10:42:00.001-04:00

The issue of battery warranties in the developing EV/PHEV field is very interesting for several reasons.

First, one of the major considerations for an EV purchaser is total cost of ownership, and with the battery being the most expensive component, the battery warranty will be a very important factor. Chevy's warranty is impressive considering the newness of the technology, and will go a long way to assuage consumer concerns.
It should be noted that Coda Automotive previously announced a similar 8 year, 100,000 mile warranty for their battery electric sedan. This is currently the benchmark for BEVs, as Nissan has not announced their warranty yet. Tesla's battery warranty for the roadster is 3 year, 36,000 miles, but it is not known what they plan for the Model S warranty.

On the manufacturer side, the warranty represents a great leap of faith with significant potential liabilities. None of the companies recently announcing battery warranties has fielded any battery powered cars for the length of time they are warranting, so it amounts to a projection based primarily on lab testing of cycle life. This testing matters a lot, but it doesn't fully account for the actual environment of a car over time and doesn't fully capture the calendar life issues.

Yet another sticky issue is what exactly you are warranting. All batteries degrade over time, losing some of their ability to hold a charge. This rate of degradation is highly variable, depending on battery chemistry, temperatures, temperature fluctuation, discharge rates and charge rates, and many other factors. In establishing a warranty, are the manufacturer's warranting only mechanical defects or defective workmanship or are they warranting a certain level of degradation over time that, if exceeded, can be remedied?

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Revenge of the ICE car

2010-07-12T15:04:00.001-04:00

One of the things that is interesting to see, and should not be overlooked with the frenzy of interest in electric and plug-in vehicles, is the innovation occurring with the internal combustion engine. Keep in mind that the more efficient ICE engines become, the higher the hurdle for EV and PHEV adoption.

There are ICE motors in cars today that are already extremely efficient, such as the Atkinson Cycle motors used by the hybrid Prius, enabling it to get 51mpg. Several of the large car companies are working on other technology like HCCI (Homogenous Charge Compression Ignition) that have promise.

Today the news of a new round of funding by EcoMotors caught my attention because of the unique approach to internal combustion. If you are a gearhead you can't help but be interested in the diagram above, which shows the basic layout of their "Opposed Piston Opposed Cylinder" design. Kindof like the old BMW boxer engines with a major twist.

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Tesla and Toyota's first steps

2010-07-12T10:28:00.001-04:00

Bloomberg follows up there report last week that Tesla (TSLA) will be delivering 2 converted Toyota chassis to Toyota with some interesting specifics. In the report today, Bloomberg reporter Alan Ohnsman identifies the two models as SUVs (or CUVs) - the Toyota RAV4 and its more upscale sister the Lexus RX.

Toyota clarified at an event in Japan last week that they are planning to release their own EV, a city car, in 2012 using a battery pack jointly developed with Panasonic. Any joint car with Tesla was said to be no earlier than 2015. This timeline is par for the course for Toyota, but painfully glacial for a company like Tesla, who would want any such potential collaboration to happen sooner.

Still, the actual delivery of 2 Toyota models retrofitted with Tesla battery packs represents quick forward steps for the announced intention to collaborate - but what does it mean specifically?

Some blogs may jump to the conclusion that Toyota and Tesla plan to jointly develop a new RAV4 EV or RX EV. While that may be in the realm of possibility, I doubt that is what is going on here. More likely that the very first step for Toyota in any partnership is to get very familiar with Tesla's technology, and specifically to extensively test the battery pack, which uses an approach that is very different from Toyota's approach and that Toyota senior executives have openly disparaged at industry conferences I have attended in the past. The quickest way to test the battery pack is to select an existing Toyota chassis that can be easily retrofitted with a heavy pack, power electronics, and motor. The larger formats of the RAV4 and RX give Tesla engineers more flexibility in packaging and are more able to handle the significant weight of the battery without significant modification. What Tesla is delivering to Toyota are two test beds for their battery technology for Toyota to use in extensively evaluating how the batteries perform.

Prior to Toyota Chief Akio Toyoda taking a keen interest in Elon Musk and Tesla, it was openly known that Toyota engineers did not favor the technological approach that Tesla had taken. In fact, Toyota engineers were cautious about Lithium Ion in general, acknowledging that they were superior in terms of energy density but preferring to take a slow and cautious approach. But all that can be overridden when the Boss decides he wants to explore the approach more.

The question now is how extensively and over what period of time Toyota's engineers will test these drivetrain mules. Elon Musk remarks in an email to Bloomberg that "We anticipate range and acceleration exceeding that of other announced electric vehicles of this class," but that is neither surprising nor sufficient. Tesla has already proven that it can assemble battery packs (along with power electrics and motors) capable of high peak power and packing a lot of kilowatt/hours. They do this in part by using cobalt cells, which need to be babied and pampered lest they start acting up, and which have questionable longevity (both in terms of calendar life and cycle life)

The big question for Toyota, a massive car company with conservative roots that has just been raked over the quality coals by a series of highly visible recalls and controversies, will be quality. They will want to feel exceedingly comfortable that the Tesla approach will last a long time in automotive applications and will be bulletproof when it comes to quality and safety. The hurdle for what is considered acceptable for a Toyota is considerably larger (orders of magnitude larger) than that of a startup car company that can afford to take more risk.

Posted via email from Darryl Siry's posterous

ZNN - How's that updated business strategy working for you?

2010-07-09T13:55:00.001-04:00

This chart shows ZENN's (ZNN.V) stock price since September 24th when they announced an "updated business strategy" to focus entirely on the mystical EESTOR ultracapacitor and abandon the banal business of making/importing cars.

Moving away from capital intensive, niche market, commodity NEVs to focus on powertrain tech might actually sound like a good idea but the problem here is there is apparently no tech. After many announcements last year that EESTOR was prepared to deliver the production EESU by the end of the year, we are now in the second half of 2010 with nothing announced.

The stock has been moving steadily down on extremely thin trading (Average volume is about 50,000 shares daily). I'm not sure how these things actually finally end, as I have witnessed ZAAP persist for many many years below a dollar.

The only thing that can save them now, I'm afraid, is a DOE loan for EESTOR. You never know.

Posted via email from Darryl Siry's posterous

analysis of AONE's chart since IPO

2010-07-02T12:50:00.001-04:00

Some interesting lessons might be learned from AONE stock chart with respect to TSLA. AONE originally estimated their IPO price at $8.50, but faced with strong institutional demand they raised the IPO price to $13.50. The stock opened with a huge pop and ran up, but then found its way back to the IPO price within 6 weeks. Interestingly, the stock had a second run all the way back to $22 before resuming the downward trend.
The important date to watch for AONE and TSLA is the 180 day lockup expiration. This is the time that insiders can sell their shares, which results in a lot more shares available for sale on the market and more selling pressure. In the case of AONE, the lockup expiry might be seen to drive the price down to a level that current investors consider very low but ironically is exactly the price that the company and it's underwriters originally estimated for the IPO.

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Tesla (TSLA) IPO observations

2010-07-01T16:59:00.001-04:00

By all objective measures, Tesla's initial public offering was an extraordinary success. After setting a healthy price range of $14-16, they priced the offering at $17. The also increased the size of the offering by several million shares. This means that there were ample institutional investors eager to buy stock in Tesla at a valuation north of $1.5B.

In terms of the transaction itself, that higher pricing and volume is a great thing for the company in that it puts a larger amount of cash into their coffers for the next few years, which they will need. That transaction is completed and is not subject to the volatility in the value of the shares moving forward.

That covers the action through Monday night. What happened on Tuesday, which could be described as fireworks, was driven by different factors. Of all the IPOs that have come through the gate, I don't believe any has the attractiveness that Tesla has to the individual retail buyer. It is a stock that people want to own, even if it is just a 100 shares. They want a piece of the cause, and are not solely motivated by the potential short term gain or loss. When you have price-insensitive buyers coming in and snapping up shares at the ask at 100 shares a pop, and you have most of the float being help by large institutions who don't plan to sell in the short term, you have the potential for rapid appreciation in the stock price.
This went on through the middle of Wednesday, when TSLA touched $30, valuing the company above $3B. A sell side analyst emailed me pointing out that Honda America has a market cap of $4B, and sold 100,000 cars in the month of June alone (more than Tesla aspires to sell in the next 5 years combined)

Someone on the buy side who asked for my perspectives during the roadshow said to me that "the way I see it, there is a 20-30% chance that Tesla is the next Google", which illustrates why people, if they agree with that premise, might see $17 as cheap. Personally, I think Tesla may aspire to the culture and engineering excellence of Google, but at the end of the day the manufacture cars, so they are unlikely to see the same gross margins and operating margins as Google.

So if all this excitement and no sellers drove the run up in the first 36 hours, what is driving the stock back to lower (albeit still fantastic) levels? No way to know exactly, but here is one theory: short sellers must wait until the third day to bet against TSLA. Up until that point, the bulls were running with no bears to balance them out. The interesting thing about TSLA is that for every person who is extremely bullish on the stock, you have another who is bearish. Very few people I have talked to in the business are lukewarm. During the roadshow, I imagine that for every buyer who was wide eyed at the growth opportunity, you had someone wide-eyed at the opportunity to short the stock. With the shorts coming in today, you got selling pressure to counteract the buying.

In pricing and placing the IPO, having a polarized reception is fine, since all you need is to fill the deal book with people who are on the bullish side. Once there is float in the market, however, those who are bearish get to participate by shorting the stock. The same dynamic happened with A123 (AONE), with short interest piling up in the months after the IPO. It will be some time before we know the short interest in TSLA, but I predict it will be similarly robust.

It took A123 about 6 months to get back to the issue price of $13.50, and it has traded below that level ever since (although it has enjoyed a nice pop in the last weeks). Time will tell whether TSLA will perform better than AONE or capitulate to the bears earlier. With the stock's performance in the last days, I wouldn't dare try to predict which way it goes.

I welcome your thoughts/predictions in the comments...

Posted via email from Darryl Siry's posterous

Cramer on Tesla: buy the IPO, sell immediately

2010-06-22T14:26:00.001-04:00

I think this is worthwhile sharing because it is the most in-depth analysis of the Tesla IPO on TV or in print so far and it has such a funny angle to it. He is hot on the IPo and cold on the stock. he also invokes the A123 (AONE) experience.

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Elon's pitch: "our valuation will be market independent"

2010-06-21T15:13:00.001-04:00

The most fascinating thing about the roadshow was Elon Musk's final words and the chart below. This is actually the first roadshow I've seen (its available online at http://www.retailroadshow.com/roadshows.asp)

Elon's final slide and words:

"Oh, one other thing, I think its maybe helpful to say what has been my track record in value creation - these are four of the companies Ive been associated with - its worth noting that every financing round in every company has been an up round, doesn't matter if the market has gone up or the market has gone down, the squiggly line is the market, and the valuations are as you can see somewhat market independent, and I expect that to be the same for Tesla, or to continue to be the same with Tesla"

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first glimpse at future Tesla designs?

2010-06-21T14:31:00.001-04:00

This slide from the Tesla Roadshow shows some anticipated future designs, including a pretty sleek looking cabriolet

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