Tesla electric cars stock fired up, ready to go

By CHRIS UMIASTOWSKI

With last year's launch of the Model S, the electric car company suddenly had a practical all-electric, no-gasoline sports sedan with a reasonable base price

Not too long ago, I came to the conclusion that electric cars are for real, and are poised to see stellar growth over the next decade. The company that convinced me of this was not one of the big auto makers. It was California-based Tesla Motors Inc.

Because of their accomplishments and the early nature of growth in this market, I wound up becoming a shareholder. And with Whole Foods Market, I now have two stocks I'd like to add to my Strategy Lab portfolio, and I'll likely be selling my shares in Sprint to accommodate them.

Given the huge runup in Tesla's stock since I've become a shareholder, I'd secretly love for Wall Street to be disappointed in the short term sometime soon, creating an opportunity for long-term shareholders to buy more.

Tesla's current success comes on the back of a single car, the Model S. This full-sized sports sedan has no gas tank. It's run only by batteries. On a full charge, it can go about as far as my family's Lexus SUV, but the savings add up to about $50 per "tank." Since introducing this Model S in mid-2012, Tesla has gone from being a "show me" story to the company that may disrupt the entire automobile industry, earning it the complimentary title "the Apple of the car industry" from many observers.

I believe Tesla found a successful model for selling electric cars because it didn't first aim for affordability. Instead the company focused on making a no-compromise car knowing it would come with a high price point. They launched in the luxury segment of the market. Their first car, the Roadster sports car, cost more than $100,000 (U.S.) and Tesla produced about 2,500 units. This developed Tesla into a luxury brand. Then, with last year's launch of the Model S, the company suddenly had a practical sports sedan with a base price of about $70,000 – still in the luxury price range, but substantially less expensive than a Roadster. Within a couple of years, the company expects to sell cars that will cost $30,000 after government rebates.

Tesla is already profitable. This week the company reported its first-quarter results, manufacturing more than 5,000 Model S cars in the quarter, recognizing revenue on 4,900 of them and bringing in $562-million in revenue with 17 per cent gross margin and net profit of $11-million. Their volume of approximately 20,000 cars per year is equivalent to what GM sells in the U.S. market in an average week. It's hardly what you could call relevant industry volume, so it's all the more impressive that Tesla can be profitable with this level of production.

I think Telsa was brilliant to build its brand by launching high-priced cars that actually meet the needs of most drivers. They will easily sell the 20,000 units they plan to manufacture this year, and I'm confident that its new financing program (in the United States) and the launch of the Model X, a sport utility vehicle, in late 2014 will bring substantial demand growth. Keep in mind that Tesla is only just getting started with its electric cars on the world stage. So far they've made zero deliveries of the Model S outside of North America.

As I write this, analysts who cover the stock expect Tesla to post earnings per share of $1.65 next year according to S&P Capital IQ. Given the strong quarterly results (the stock price jumped 24.4 per cent in Thursday trading), I imagine estimates will be revised higher. I believe Tesla is on a path to achieve incredible growth over the next decade. One of my investing mantras is that people tend to overestimate change in the short term, yet underestimate it in the long term. In the next year or two, I don't have any illusions about electric vehicles becoming commonplace. But in 10 years? Sure.

Ten years ago, I don't think we had any clue how important wireless broadband technology would become. We didn't imagine being able to watch streaming video on a mobile phone. Just the same, I think in 10 years we may look back at all the money we wasted on gas-powered cars. Electric cars don't need $65 gas-tank fill-ups. They don't need oil changes, spark plugs or smog checks. They don't need replacement timing belts, mufflers, catalytic converters, fuel injectors, oxygen sensors or many of the other complex electro-mechanical parts required by gasoline cars.

I like owning stocks in companies that are leaders in an industry facing disruptive growth. I think Tesla is that company in the automotive industry. Sure, I missed out on a chance to buy this stock at less than half the price back when my Strategy Lab portfolio launched. But Tesla is now much further along the road to proving itself as a sustainable company. Its market cap seems high, having reached $8-billion following Wednesday's earnings report. But for comparison, BMW is worth more than $60-billion and generates significantly weaker gross margin per vehicle. If there is a future for the electric car, I think Telsa gives investors plenty of growth opportunity.

Chris Umiastowski is the growth investor for Globe Investor's Strategy Lab.

Special to The Globe and Mail

Are solar energy stocks a BUY???

by Jeff Siegel, from Modern Energy Report, Energy & Capital

Last week, the Chinese government announced it will more than double its installed solar capacity in 2013.

In an effort to help China-based solar manufacturers eat through a massive glut that has pressured margins for more than two years now, the Middle Kingdom is hoping that by consuming its own product instead of shipping nearly everything overseas, it can provide some relief to its solar industry.

Certainly, this will happen. But even with the mountains of cash the government is now plowing into the sector, its still not going to be enough to fix the oversupply problem in the near term...

Yes, it will help alleviate some of the problem — but the fact is most of these companies still aren't making any money this year.

So really, this solar push in China is more about keeping these companies afloat until supply no longer exceeds demand — at least, at this level.

Still, this reality has not kept solar stocks from rallying over the past few months. And quite frankly, I don't know how long it'll last.

But I can tell you most of this recent run has pushed stock values to levels that simply don't make sense. And at some point, they'll have to correct.

Of course, that's not to say all the recent gains in the solar sector are overdone... and it didn't hurt that back on January 4, the company announced its rooftop solar installations were set to climb 60% this year, and that it expected to be cash flow positive by the end of the year. On that news alone, the stock jumped more than 10%.

The question now is: How much higher can this thing go?

To be honest, I have no idea. But here's what I do know: I never jump on a falling knife, and I never chase a flying stock.

Although I think SolarCity can be properly valued at around $18 a share, I'd be hesitant about paying more than $15 right now.

It's funny, but I remember when I first told my Power Portfolio readers about SolarCity all the way back in February...

I received a number of emails from readers who didn't want to touch a solar stock.

There's a very real difference between a solar manufacturer with suffocating margins and a company that generates millions from solar installation and leasing contracts.

Despite the few remaining knuckle-draggers in the media who still haven't figured out that the solar industry is here to stay — and that it will continue to grow by leaps and bounds over the next decade — most energy investors know there's big money in solar installation... particularly with so many manufacturers selling their goods at a loss just to get inventory out the door.

Bottom line: It's never been a better time to be an installer.

And SolarCity does allow for regular investors to get a piece of that action.

Toxic Energy still getting lion's share of funding

How Money Corrupts the Politics of Energy

by J. Mijin Cha, a Senior Policy Analyst in the Sustainable Progress Initiative at Dēmos

The last few weeks have not brought good news for those of us wanting a future powered by clean energy. The southern portion of the TransCanada pipeline is under construction. On top of that, New York State will lift its moratorium and allow fracking to occur in the state. If things continue along this path, not only will we miss out on the economic opportunity of renewables, we will also be forced to bear the substantial economic and environmental costs of extreme energy.

Fracking and tar sands are considered to be extreme forms of energy because of the amount of time, cost and destruction that go into extracting the resources. Oil and gas reserves that were easily accessible are largely tapped out and as energy prices increased, these more extreme and expensive forms of extraction became more viable. In the case of fracking, large volumes of toxic chemicals and water are injected into the ground to release natural gas in shale deposits. Tar sand mining uses open pits that destroy large surface areas and require enormous amounts of water.

The environmental consequences from extreme energy sources are well documented. Fracking causes several environmental hazards, including polluting water supplies, increasing earthquake risks in areas not normally prone to earthquakes, and making tap water flammable. Not only is tar sand mining dangerous, the pipelines that carry the oil spilt over 800,000 gallons of oil in Wisconsin and Michigan in just two years causing substantial environmental and economic damages to communities. These examples show just a fraction of the costs that will be imposed by an extreme energy future.

Of course, not everyone will bear these costs. The fracking industry, for one, is looking to profit handsomely, especially now that it can expand into New York. While TransCanada's profits fell last quarter, it still managed to pay out C$272 million to shareholders and have total revenue of C$1.8 billion. At the same time, the job creation and economic development promises these companies make to the impacted communities are unlikely to come through. Cornell's Global Labor Institutedefinitively debunked TransCanada's job creation number and the idea that fracking creates great, local jobs is a myth, as seen by the inability of fracking operations in Pennsylvania to deliver on the level of local job creation promised.

In order to guarantee these profits, the oil and gas industry spends a large amount of money lobbying and buying influence. In 2011, the oil and gas lobby spent nearly $150 million on lobbying. This year, they've already spent over $70 million. These numbers don't include themillions of additional dollars spent on campaign contributions either directly to candidates or to outside spending groups. Considering the amount of money they will make from an extreme energy future, it is a worthwhile investment. Not only does money talk, it makes policy.

Yet, it doesn't have to be this way. If our elected officials made policy decisions based on what was in the public- not private- interest, we would see meaningful investments in clean, renewable energy production. Renewable energy investments produce far more jobs and economic development than the extreme energy alternatives. And, as an added bonus, renewable energy production doesn't pollute water sources, increase earthquake risks, or make tap water flammable.

Creating an energy future that results in more jobs and no flammable tap water seems like a good idea to me. It's a shame most of our elected officials don't seem to agree.

This post is part of the HuffPost Shadow Conventions 2012, a series spotlighting three issues that are not being discussed at the national GOP and Democratic conventions: The Drug War, Poverty in America, and Money in Politics.

HuffPost Live will be taking a comprehensive look at the corrupting influence of money on our politics August 29th and September 5th from 12-4 pm ET and 6-10 pm ET. Click here to check it out -- and join the conversation.

 

Follow J. Mijin Cha on Twitter: www.twitter.com/@jmijincha

Are China's solar energy stocks nearing bottom?

When will the stock price of China solar panel makers stop collapsing? When China starts switching to solar power. In other words, unless there are bottom feeders in the market with a long-term bullish outlook on the sector, 2012 promises to be a killer for China solar.

Yet, despite U.S. government’s anti-dumping charge against them on Friday, industry insiders said at a conference in Shanghai that they were hopeful for a rebound.

On Friday, the U.S. Commerce Department announced it would start charging 31% higher import duties on China made solar panels and equipment after a finding that Chinese solar panel makers were selling goods in the U.S. below market prices. If approved, the tariffs are expected to have a significant effect on the industry, which exports nearly $2 billion worth of solar panels to the U.S.

Immediately following the announcement, Shen Danyang, spokesman for the Ministry of Commerce in Beijing, said the U.S. was being protectionist.

“(Washington is) deliberately provoking trade friction in the clean energy sector, and…sending the world a negative signal about trade protectionism,” Shen said in a statement.

Shares of China’s biggest solar makers have suffered a crushing defeat in the markets with JA Solar (JASO) wiping out 15% of its share price on Friday. The stock is now at the risk of being delisted, trading at just $0.89 a share. It’s down 33.5% year to date, but down even more — 84% — over the last year.

The European debt crisis hasn’t helped either. Nearly all of China’s solar market depends on solar subsidies in Europe. When countries like Italy opted to cancel those solar subsidy programs last year to save money, China solar stocks took it on the chin.

Suntech Power Holdings (STP) is down 74% over the last 12 months as investors holding these stocks will have to rethink profit margins now that President Obama has ordered the tariff hikes.

So when will this sector turn around?

“I believe the market will revive in 12 to 18 months,” Brian Lau, director of DEK Solar, said at the Sixth SNEC PV Power Expo, held in Shanghai from Wednesday to Friday.

The China Daily noted that in addition to the new tariff and European subsidy cuts, oversupply of polysilicon, a key component in manufacturing solar panels, has depressed the price of solar cells. Lau told conference attendees that the current surplus is driving solar prices down. That’s adding to the already dismal outlook for the sector. But that’s short term.

As prices become lower, there will be more customers.

“After all, the industry cannot always rely on subsidies,” Lau said. “Currently, more output is not what they want, what they want is a cost-effective, and accurate production line,” he said, noting the new platform will save space by 50%, and also largely reduce energy consumption, while improving the battery conversion rate,China Daily reported from Shanghai.

More than 90% of solar panel products made in China are bound for export. Industry insiders are hoping that as China gets serious about green technologies, from solar power to lithium batteries that power electric cars, Beijing will mandate its own use of solar energy in the near future, priming the pump for an industry that’s grown too dependent on the wrong countries.

California to invest $100 mil in electric car charging stations

By Jeff Siegel, Energy & Capital

It all went down on June 14, 2000...

California suffered its largest planned blackout since World War II.

Two months later, Governor Gray Davis called for an investigation into possible price manipulation in the wholesale electricity marketplace.

That's when Dynegy Inc. was officially accused of price manipulation and other fraudulent practices.

Fast-forward to 2012, a $120 million settlement is finally announced.

And what will the state do with that money?

Something that's going to help make us a boatload of cash!


Going to California

Twenty million dollars from this settlement will go to fund the reduction of consumer energy bills. That part doesn't concern us — unless, of course, you live in the Golden State.

The other $100 million?

Well, this is where it gets good...

Governor Jerry Brown announced last week the state will use the remaining $100 million to install 200 public fast-charging stations for electric vehicles, as well as 10,000 plug-in units at 1,000 different locations across the Bay Area, San Joaquin Valley, Los Angeles, and San Diego.

There are three ways we can profit from this.

The first is the most obvious: the companies that make the charging stations.

There are five that have a shot at getting some of this action:

Coulomb Technologies

ECOtality (NASDAQ: ECTY)

AeroVironment (NASDAQ: AVAV)

General Electric (NYSE: GE)

Siemens (NYSE: SI)

Playing the charging angle is tricky, though. Your choices are limited to small, speculative plays or huge corporations that simply have some exposure to this market.

Certainly there's opportunity here. But quite frankly, this isn't where the real money is.

If You Build It, They Will Come

Here's the interesting thing about California's focus on electric cars...

The state expects to have 1.5 million zero-emission vehicles on the road by 2025. Most of these will be electric.

And don't let the loudmouths in Washington or the media dissuade you. This is going to happen.

Of course, if you think I'm off base, that's fine. But I've spent enough time with lawmakers in California and top execs at the biggest automakers to know this path to 1.5 million is well under way.

Now, we also know that by 2015, all the major cities in California will have adequate infrastructure in place to accommodate these 1.5 zero-emission vehicles.

Last week's announcement just further validates California's commitment.

By the way, this announcement came just days after it was announced that a 160-mile stretch of Interstate 5 is now outfitted with fast-chargers that can charge an electric car in 20 minutes. They're spaced about 25 miles apart all along this Pacific Coast motorway.

My point is this: More than half of the states in this nation are now actively building out an infrastructure to support the integration of electric cars.

You may not be a fan of electric cars... You may think they're inefficient, unattractive, and unable to meet your daily driving needs.

But make no mistake about it; that should have no bearing on whether or not you decide to profit from them.

Aging atomic energy plants have major safety problems: IAEA

by Fredrik Dahl, Toronto Star

VIENNA — Eighty per cent of the world’s nuclear power plants are more than 20 years old, which could impact safety, a draft U.N. report says a year after Japan’s Fukushima disaster.

Many operators have begun programmes, or expressed their intention, to run reactors beyond their planned design lifetimes, said the International Atomic Energy Agency (IAEA) document which has not yet been made public.

“There are growing expectations that older nuclear reactors should meet enhanced safety objectives, closer to that of recent or future reactor designs,” the Vienna-based U.N. agency’s annual Nuclear Safety Review said.

“There is a concern about the ability of the aging nuclear fleet to fulfill these expectations and to continue to economically and efficiently support member states’ energy requirements.”

The Fukushima tragedy was triggered on March 11, 2011, when an earthquake unleashed a tsunami that left 19,000 people dead or missing. It also smashed into the coastal power plant causing a series of catastrophic failures at the facility.

Images of the stricken plant shook public confidence in nuclear power and forced the nuclear industry to launch a campaign to defend its safety record.

IAEA Director General Yukiya Amano told Reuters last week that nuclear power is now safer than it was a year ago. The report said the “operational level of NPP (nuclear power plant) safety around the world remains high”.

It cited steady improvements in terms of unplanned reactor shutdowns in recent years.

But the 56-page IAEA document also highlighted aging nuclear plants, with eighty per cent of the 435 facilities more than two decades old at the end of last year.

This “could impact safety and their ability to meet member states’ energy requirements in an economical and efficient manner”, said the report, which has been submitted to IAEA member states but not yet finalized.

Operators and regulators opting for so-called long-term operation “must thoroughly analyze the safety aspects related to the aging of ‘irreplaceable’ key components”, it added.

LESSONS LEARNED?

About 70 per cent of the world’s 254 research reactors have been in operation for more than 30 years “with many of them exceeding their original design life”, it said.

The document was debated by the IAEA’s 35-nation governing board last week, almost exactly a year after the world’s worst nuclear accident in 25 years.

The tsunami overwhelmed Fukushima on Japan’s northeast coast, knocking out critical power supplies that resulted in a nuclear meltdown and the release of radiation.

The reactors were stabilized by December, but high radiation levels hamper a cleanup that is expected to take decades.

After the accident, Germany, Switzerland and Belgium decided to move away from nuclear power altogether to grow reliance on renewable energy instead.

But other states, for example fast-growing China and India, continue to look to nuclear energy to meet their growing energy needs, the IAEA report said, adding that some “are even accelerating their nuclear energy programmes”.

France is building its first “advanced” reactor and Russia is seeking to double its nuclear energy output by 2020, it said.

“All countries that are using nuclear power are much more serious about nuclear safety,” Amano said last week. But environmental group Greenpeace said no “real lessons” appeared to have been learned from Fukushima.

Penalties for high "order to trade" ratio will spur smarter algorhytms

Italian Borsa Move May Breed Brave New World of Algos

by John Bates, Chief Technology Officer, Progress Software

The Italian stock exchange Borsa Italiana's decision to clamp down on "excessive" HFT orders is likely to be a shot heard around the world. The Borsa is considering charging HFT firms for sending too many orders, particularly ones that do not result in trades, according to the FT.

Order-to-trade ratios have long been a concern of exchanges, ECNs and other trading venues as quote volumes go through the roof. If the number of orders being sent greatly outweighs the number of trades concluded, this can cause problems. All unnecessary orders (i.e. cancellations) create a load on exchanges; and they can provide a smokescreen to hide potentially abusive behavior (so called "quote stuffing").

I am willing to bet that the Borsa's move will be followed elsewhere. Most exchanges and alternative venues express concern that they will not be able to cope with the amount of orders coming down the pipe if they continue to grow. The SEC is considering charging HFT firms for cancelled trades, according to The Wall Street Journal. And interconnectivity between exchanges is increasing, so in order to trade smoothly between exchanges and effect arbitrage it is important that all destinations follow similar rules and procedures.

But many exchanges and ECNs, particularly in the U.S., have policies to encourage HFT rather than discourage. (Some venues even offer a tidy sum to attract large trades and liquidity providers by offering volume rebates.) The Borsa solution is the opposite of this -- it will discourage HFTs from experimentation.

But HFT players argue that it is necessary to dip their toes into the waters of the markets before they dive in and execute their trades. Their algorithms can dart in, test depth of book and trader/market sentiment, and swoop out -- often without doing any business.

The question here is, do you need to send out orders to test the market? What if you could watch and then act? Using trade orders is akin to being a venus fly trap, with your tentacles out waiting to catch the odd unwary fly. What if you could be more like an alert frog, waiting until you see the prey and then sticking your tongue out to catch the right one -- or lots of them?

Testing the waters with quotes is probably the most harmless issue in HFT. Other issues include quote stuffing, where HFTs "stuff" the book on a particular share with millions of orders, so that others cannot get in to trade. This is a kind of front-running, where the quote stuffer gets the deal done before the market can move on him.

On balance, I think the Borsa has the right idea. The Borsa benefits by having a more bulletproof trading platform, less sensitive to quote stuffing and errors. "Real" players are rewarded with real liquidity and done deals, while those who may have a more hidden agenda are discouraged from quoting.

I wonder if this is a brave new world for algorithms, where they have to pay a penalty for high frequency strategies. If so, they will have to change. The Borsa's solution, especially if it is embraced by other trading destinations, may spawn a new generation of intelligent "sensing" algos.

Today's algos that are using techniques to flood the market will be replaced by smarter ones that are more like the canny frog. They will weigh up their chances and dart their tongues out and catch the fly. Or they will miss the fly and learn from their mistakes, correcting and tweaking their techniques. You can be like the frog, but in order to do it you have to become more sophisticated. Weigh it up, ask some questions.

Source: http://www.huffingtonpost.com/john-bates/borsa-italiana-hft_b_1298943.html