Electric-car maker Tesla Motors Inc (NASDAQ: TSLA) is up 337.8% since the start of the year – defying the shorts, all of the bears and myself included, but there is a growing case against the stock and it dropped a bit on Monday after a Barron's article appeared over the weekend pointing to "bubble trouble." The Barron's article was more or less a continuation of a lengthy June cover story where the magazine admitted that while Elon Musk's award-winning Model is admirable, they are skeptical that Tesla can cut battery costs enough to deliver a cheaper "Gen 3" car with a 200-mile range by 2017. But if they fail to do so, Barron's suggested that Tesla stock might drop toward $50 and that nothing in its results results changes their view.
Thus far, betting against Tesla and Elon Musk has been a loosing bet for the shorts, but the ground may be shifting. Consider the following considerations:
You Want New Investors to Pay How Much For a Share (PART I)? David Dietze, the President & Chief Investment Strategist at Point View Wealth Management, recently appeared on CNBC to say that investors should not get into Tesla Motors as the stock is just too expensive. To put how expensive into perspective, he pointed out that Tesla intends to sell 40,000 cars and now has a market cap approaching $18 billion while General Electric Company (NYSE: GE) sold 3 million cars and has a market cap around $49 billion. In other words, you are paying 35 times more per car. Sure, people are willing to pay three times for a Tesla car, but paying 35 times more just makes no sense. David also added that all of the world's other automakers are bound to start piling in if they think there is money to be made in electric cars or hybrids. You Want New Investors to Pay How Much For a Share (PART II)? In a recent CNBC segment, the host noted that if you divide Tesla's market cap by the number of cars its predicted to sell this year (about 21,000), it equals $885,000 per car. However, one of his guests then went on to talk about the massive potential market in Europe where driving distances are shorter and gas is expensive plus bets that Tesla cars become a mass market car rather than an expensive toy. Tesla's Sales Projections are Based on What? During the earnings call, someone asked about the 40,000 units per year by late 2014 comment in the shareholder letter and what its based on. Elon Musk answered:"Actually it's just based on what we kind of see the demand as like. I mean, right now obviously we are selling in North America at about 20,000 units a year. So, Europe is a similar size market to North America. China is actually bigger and then that doesn't include the rest of Asia Pacific, South America, South Africa, Australia. So it seems like that's a pretty safe number to assume."
In other words, he's pulling numbers out of thin air while investors may want to remember that not every country is going to jump at the idea of implementing generous subsidies and tax breaks so that their wealthiest citizens can buy expensive American electric cars.
First There is Tesla, Then SpaceX and Now the Hyperwhat Thing? Certainly, Elon Musk is a visionary to have helped dream up with Paypal, and then Tesla, and then SpaceX, but the Hyperloop? First of all, he sells a few electric cars mostly to wealthy buyers in the San Francisco Bay area – hardly a revolution just yet and then he has SpaceX venture and now he wants to talk about some sort of Hyperloop. Irrespective of whether or not the last two ideas end up working out, there may come a time when investors wish Elon Musk had concentrated all of his energy on making Tesla work as its still not a sure thing for the long haul. Could the Bulls and the Bears and I Be Missing Something Important?Hot Construction Material Companies To Invest In 2016
With all of the above said, there could be something that the Tesla bears and I are missing that was pointed out. On CNBC's Closing Bell's Talking Numbers segment amid all the rosy talk and hype from two Wall Street personalities, one of those personalities made the observation that amid Wall Street's fixation on how many cars are sold, we are failing to see the forest through the trees so to speak in that Tesla has become a major supplier of technology to "old school" car companies. However and even if that is true, one still has to ask whether a $17.66 billion valuation is justified for what might turn out to just be a glorified auto parts company that happens to sell very expensive cars.
