Since Tesla’s IPO in June, some stock traders who are "short selling" Tesla stock have been moonlighting as financial bloggers. It's important to remember that these short sellers are not objective observers or neutral pundits. Worse, their posts often contain factual errors. So-called shorters only make money when a stock loses value, and they may lose substantial sums if a stock stays the same or increases in value. In other words, they have a vested and leveraged financial interest in rapidly plunging stock prices.
Recently, Tesla shorters have expressed disbelief that Tesla can get Model S to market for less than $1 billion. The catchy phrase "Billion-dollar bravado" pops up with alarming frequency – and for one simple reason: for more than a decade, analysts have believed that the cost to a traditional car maker of developing a new platform is $1 billion. The sum is so oft-quoted that it's become an unquestioned industry standard.
Tesla has told investors that Model S development would cost about $400 million, undercutting conventional wisdom by a wide margin. Remember, Tesla has previous success in frugal product development: the Roadster was developed for $125 million.
The billion-dollar thesis doesn't apply to Tesla. Analysts presume capacity for a high-volume product, typically for 200,000 units or more per year, and an enormous workforce (tens of thousands) for research, design, overall development, and production engineering.
Tesla currently employs 800 people, and expects to ramp to approximately double the headcount by the time Model S starts production. We believe that volume for the Model S could be approximately 20,000 per year. Tesla has a proven powertrain design and will leverage Roadster R&D for Model S. Knowledgeable analysts will admit that giant automakers can and have broken the $1 billion barrier when they adhere to lean production principles.
Tesla and Toyota have a strategic partnership focused on electric vehicle manufacturing. Tesla plans to manufacture the Model S at the Tesla Factory in Fremont, Calif., where Toyota perfected the most innovative and leanest manufacturing tenets in the industry. Tesla's strategic partnerships with both Toyota and Daimler are indirectly helping to reduce costs of the Model S even further.
Inconveniently for short sellers, none of those facts support their position.
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