Tesla Hits Some Serious Potholes

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Electric-car maker Tesla (NAS: TSLA) is finally acknowledging the realities of the marketplace. According to news reports, the Tesla Roadster, which brought Tesla to the forefront of electric automotive technology and brought it much fanfare, is being discontinued in two months in the U.S. market and being replaced by the Model S.

Tesla probably sees the Model S as a way back into the market after several quarters of dismal performances. Allegedly, it's even looking into production of cheaper electric cars.

End of the Road
The Roadster was the first car to come out of the Tesla stables. It grabbed eyeballs because of its sleek design, its driving range, and the fact that it was an all-electric sports car. But the price tag of $109,000 was clearly a dampener even for a diehard sports-car fan. Tesla claimed that the Roadster was more than twice as efficient as Toyota's (NYS: TM) Prius, but ultimately the company could sell only a handful -- about 1,650.

Nevertheless, the company garnered a lot of confidence from investors and the government. In fact, the Bank of Uncle Sam has doled out a $465 million loan from the U.S. Department of Energy for Tesla to set up a manufacturing facility for the new Model S. It's good to have friends in high places.

With the Roadster off production, Tesla is now looking at carving out some market space for the Model S to grow. As the Roadster fades out, it takes with it the idea that changed the way people looked at electric cars -- from boxy moving objects to sexy high-end sports cars.

Start your engines
Tesla has not changed its marketing strategy. It plans to focus on the high-end vehicle market and provide a sleek, attractive design coupled with features to die for. For the Model S, there will be three variants. Each will have different driving ranges, and each will be priced accordingly. The lowest price will be $57,400, and the highest is said to be $77,000. Deliveries will begin by the middle of 2012.

Tesla plans to produce 5,000 units in 2012 and take that number up to 20,000 in 2013. But this will be possible only if Tesla can crank up demand for its vehicles. Although rising oil prices could work in the company's favor, expensive batteries continue to be a problem. Battery costs can go as high as $25,000.

Even after Tesla's not-so-profitable run with the Roadster, companies such as Panasonic (NYS: PC) are continuing to put money in the technology that runs it. Tesla uses Panasonic battery cells and plans to collaborate on the development of advanced battery technology.

Fool's take
Selling 20,000 cars by 2013 is going to be a tough job, and it has to be done in the presence of competition from the Nissan Leaf and several other plug-in hybrids such as GM's (NYS: GM) Chevy Volt and the Ford (NYS: F) C-Max, which is scheduled for launch in 2012.

It looks like Tesla has a long way to go before it finds the road to profitability. As long as electric cars remain costly, it will take a lot more than some killer features to sell them. The way I see it, Tesla is a stock that the Foolish investor should stay away from.

At the time this article was published Fool contributor Arunava De owns no shares of the companies mentioned in this article. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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