A Tesla Inc. (TSLA, Financial) Model X beat a Lamborghini Aventador in a quarter-mile drag race on Tuesday. It also set a new record for fastest SUV in a drag race.
This is quite impressive. The question though is, so what?
Other than radiating an image of being ultracool, stylish and politically correct in light of climate change, it remains a bit unclear what kind of car company Tesla is trying to be. Tesla’s drag race victory thanks to its “ludicrous” setting, taken right out of Mel Brooks’ "Star Wars" parody "Spaceballs," will certainly draw some attention and good press. Drag race enthusiasts will fawn. They already are. But why has Tesla, a company now $9.74 billion in debt after its latest $1.8 billion debt offering, invested money in a ludicrous car feature that has little practicality?
Certainly, established firms like Toyota Motor Corp. (TM, Financial) or Honda Motor Corp. (HMC, Financial) can afford to tinker around with their supercar experiments like the Honda NSX. They have the resources to experiment a little bit, maybe attract some attention and wink at drag racing enthusiasts for a slice of that pie. But it must not be forgotten that, unlike Toyota or Honda, Tesla’s fuel is borrowed money, and it just borrowed $1.8 billion more. Not its own profits, of which it has none. And with that borrowed money, the company has chosen to invest in a ludicrous accelerator. And, boy, does it work great.
There are a few possibilities regarding exactly what Tesla wants to accomplish here by setting a drag racing record. It could conceivably be for branding purposes. The Tesla that beat out the Lamborghini had a $165,000 price tag. This is super expensive but still a fraction of the cost of the $530,000 price tag of the Lamborghini it beat. Perhaps Tesla is trying to spread a thin but shiny layer of supercar over its entire line of cars so as to make its mass market vehicles more attractive to lower-tier buyers. “Own the brand that beat Lamborghini for only $30,000” or some similar marketing strategy.
It could also just be a wow factor in the hope of loosening the wallets of debt investors. “If it can beat Lamborghini, the company is going places, so buy its debt.”
Or it could just be a general public relations stunt to give the car company more notoriety. It’s certainly working on that front as well.
The problem is, it’s all flair and frill. While that’s important, it doesn’t make or break a company. Nobody needs a ludicrous setting except drag racers. Most people need reliable cars that are easy to maintain and safe to drive. Once you master that, then the flair and frill can help you beat out the competition.
Bottom line, we still do not know if Tesla’s mass market cars are reliable, easy to maintain and safe. We’ll find out when the mass market is actually driving them. For now though, the stock looks ludicrously expensive, given that it has a higher market cap than Honda, a company that sold 5 million vehicles this past fiscal year. Tesla sold 76,230.
Disclosure: No positions.
