Summary:

Are we underestimating the electric car market? A bullish outlook from Morgan Stanley and President Obama’s energy speech apparently have raised that question, even though neither has made a good case for the answer to be “yes.”

Tesla Model A Alpha Electronics Version

Tesla Model A Alpha Electronics Version

Are we underestimating the electric car market? A bullish outlook from Morgan Stanley and President Obama’s energy speech have apparently raised that question, even though neither has made a good case for the answer to be “yes.”

The investment firm dissected the business case for Tesla Motors and issued a research note Thursday that called the Silicon Valley company “America’s fourth automaker” and raised the price target for Tesla’s stock to $70. That’s more than doubling what the shares are trading these days, at mid-$20s. Shares shot up as much as 21 percent on Thursday on the news of the report.

Morgan Stanley said high oil prices and public policy that nudges automakers and consumers away from cars with combustion engines will do the trick to make Tesla a formidable player in the auto market and give electric cars 5.5 percent of the global car sales by 2020.

In his energy speech yesterday, Obama called for cutting foreign oil imports by a third from the 2008 levels (11 million barrels per day) by 2025. He promised to help oil companies expand production within the U.S. and push for more production of biofuels, electric cars and natural gas. And, no, he’s not backing away from nuclear power.

It’s not surprising to see Tesla’s shares go up when a key political speech favors the type of products Tesla delivers. But to position the company as a significant player in the industry when it has yet to deliver a car that can appeal to the masses seems premature. The company also won’t likely make a profit for a couple of years at least.

Tesla isn’t due to launch Model S until mid 2012, and its pricing can hardly compete with affordable, gasoline-powered cars. The model with a 160-mile range will cost close to $60,000, while the one with a 300-mile range will be close to $80,000, the company said earlier this month. Meanwhile, the Nissan LEAF and the Chevy Volt are priced well under the Model S at $33,000 and $41,000, respectively, and Coda’s sedan is supposed to cost $45,000. Ford and other car companies also are due to launch electric passenger vehicles over the next year (join the conversation about electric cars at Green:Net 2011 on April 21 in San Francisco).

Morgan Stanley, which was one of the underwriters for Tesla’s IPO last year, did note that Tesla may run into money trouble while it boosts sales and manufacturing to launch Model S and subsequent vehicles. While the investment firm doesn’t believe the company will run out of cash, it also said “there is also not much room for error.”

The forecast that electric cars can carve out 5.5 percent of the global auto market by 2020 is more optimistic than predictions from other firms, including J.D. Power & Associates, which is pegging the market share at two percent by that time. Given that the electric car sector is so young, it’s really a crap shoot to predict how well electric vehicles will fare in 10 years. Consumers certainly pay more attention to fuel-efficient cars these days because of high gasoline prices, but they also could be holding on to their gasoline cars for much longer in order to delay paying for any big-ticket item.

While the federal government has awarded a few billion dollars for electric car research and development, including loans and grants for manufacturing auto parts such as lithium-ion batteries, it also is devoting a lot of resources into biofuels. Obama wants the country to reduce its reliance on foreign oil, but that doesn’t mean consumers will simply move from gasoline to electric cars. There’s also companies working on more efficient engines for traditional cars.

The country has been trying to get away from imported oil and develop gasoline alternatives for many years now, even before Obama took office. Obama and Congress have injected lots of money into clean energy and electric car development, but it’s too early to know whether these investments of public money will pan out.

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