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Tesla: Burning Down the Bears' House

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Tesla has silenced the doubters.

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As far as weeks go, this has been one of the best in electric carmaker Tesla Motors' (NASDAQ:TSLA) relatively short history.

On Tuesday, the company announced that it sold and delivered almost 6,900 vehicles in Q4, surpassing guidance by about 20% and slaying the hopes of the bears in the process.

Through most of 2013, Tesla rode a tidal wave of critical acclaim for its award-winning Model S sedan to become a financial media darling. And it certainly didn't hurt that Elon Musk is easily the most fascinating CEO since Apple's (NASDAQ:AAPL) Steve Jobs.

Tesla accounts for less than one-tenth of 1% of global automotive production, but at times it felt like it generated 99% of auto-industry headlines.

By the fourth quarter, the company was facing a storm of negative news related to three vehicle fires -- a seemingly large number considering Tesla's low production output.

It was never clear whether the fires were the result of manufacturing defects (one fire started when a drunk driver got in a high-speed crash) or some flaw inherent to electric vehicles, but Tesla quickly saw the dark side of being the biggest story in town. In a blog post, Elon Musk noted that the three Model S fires received more national headlines than the 250,000 gasoline fires that occurred since 2012.

So what do we know now?

Well, for one thing, from a stock market perspective, Tesla's "Firegate" controversy may go down in history as the most overblown product malfunction story since the 2010 iPhone "Antennagate" fiasco.

As far as brand loyalty goes, the Tesla tribe is very strong; in a bizarre way, this controversy may have actually strengthened the company's reputation.

If you read Elon Musk's blog postings on the car fires, you can see that they're crafted to not only absolve Tesla of wrongdoing, but to sell the idea that the Model S is the best thing on four wheels.

Here's an excerpt from an October 4, 2013 post on a fire that week:

Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. A typical gasoline car only has a thin metal sheet protecting the underbody, leaving it vulnerable to destruction of the fuel supply lines or fuel tank, which causes a pool of gasoline to form and often burn the entire car to the ground. In contrast, the combustion energy of our battery pack is only about 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan.

And another from November 18, 2013:

There are now substantially more than the 19,000 Model S vehicles on the road that were reported in our Q3 shareholder letter for an average of one fire per at least 6,333 cars, compared to the rate for gasoline vehicles of one fire per 1,350 cars. By this metric, you are more than four and a half times more likely to experience a fire in a gasoline car than a Model S! Considering the odds in the absolute, you are more likely to be struck by lightning in your lifetime than experience even a non-injurious fire in a Tesla.

Is this spin? I don't know. But it does sound convincing, doesn't it? These posts were almost certainly widely read by an awful lot of potential Tesla owners, who probably didn't even realize they were being hit by a brilliant, stealth sales pitch.

This stuff should be taught in PR classes. When Tesla takes a hit, it doesn't back up. It always strikes back with logical, quantitative-based arguments that address controversies head-on.

And we now know that there's just no indication that people stopped wanting Tesla cars as a result of the fires.

For investors, there's a secondary bonus to Tesla beating its guidance so handily: the overcoming of production hurdles.

Tesla took a big hit after reporting its Q3 results on November 5, 2013 because it wasn't delivering cars at the pace Wall Street expected. That wasn't a demand issue -- Tesla just couldn't get all the batteries it needed.

That problem appears to be clearing up, which means a second chunk of the Tesla bear case just got taken out.

So do you still want to bet against this company? Good luck.

See also:

Live From CES: Your Next Audi Will Be Obsolete in Two Years

Wii U Was a Nightmare to Design For, Reveals Developer

Twitter: @Minyanville

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