Tesla Motors, Inc. (NASDAQ: TSLA) has hit some speed bumps lately. The Model X has seen several delays, plummeting oil prices have robbed the case for electric vehicles (EVs) of its urgency, and the stock has fallen nearly 30% since September from $279.20 to its current $199.03.
Many have long called TSLA overpriced by as much as 70%, pointing to its diminished sales and the rising cost of constructing new manufacturing plants. And it seems that their validation has finally come.
However, proving that something doesn’t work is the best way to get it fixed, which is exactly what’s happening right now.
At this stage of corrections, Tesla is valued at $25 billion, 219 times estimated earnings for 2015. Compare that to Ford Motor Co. (NYSE: F), which trades at 13 times earnings.
Even for a company with upward mobility, TSLA is expensive. For its share price to make any sense at all, you have to put stock in Elon Musk’s vision for absolute market disruption of vehicles with internal combustion engines.
Calling Musk ambitious would be an understatement. Here are a few of his Tesla-related goals over the next few years:
- Finish the company’s prototype SUV, Model X, an electric SUV with two motors in 2015
- Rollout home batteries as backup power and solar storage in 2015
- Complete construction of the $5 billion lithium-ion battery factory between 2016 and 2017
- Increase the $35,000 Model 3’s range to 200-plus by 2017
- Sell 500,000 EVs by 2020, 14 times last year’s amount
- 50% revenue growth every year, for a decade
Even if only the more modest half of those targets are hit, count on people changing their tune. But if the next couple years goes any better than that, expect Tesla’s stock to get a lot more “overpriced.”
The Tesla Of Tomorrow
Musk is planning to invest $1.5 billion this year alone and that’s just the beginning.
So the next play depends on your perspective: if you’re confident that Tesla will succeed in the long-term, get in before the stock turns around. If not, find a comfortable spot and make sure you can see all right as the company crashes and burns.
According to Musk, Tesla will spend “staggering amounts of money” just this year. The Nevada Gigafactory alone will cost about $5 billion, only about $110 million of which has been spent so far.
The company must also increase its car manufacturing capacity to 10 times the current level in the next five years.
The projected share price between 23 analysts ranges from $65 to $400. That’s an unprecedented spread, valuing the company at anywhere from $8 billion to $50 billion. What this should tell you is no one really knows what’s going to happen, and that shouldn’t surprise you.
Tesla has always been a long-shot company. In all likelihood, the products that will either make or break the company haven’t been invented yet.
We’ve had glimpses of affordable EVs, but they’re generally impractical, with a range of less than 100 miles and lengthy charge times.
Predicting sales of the next generation of mass-market EVs now would be like trying to predict the success of a product the likes of which has never been seen.
No matter how you look at it, betting on or against Tesla is a risk and we won’t know which side is going to come out on top for at least several years.
If Tesla grows according to “plan,” it could be worth as much as Apple Inc. (NASDAQ: AAPL) in 10 years but that’s a big “if.” At least for the next few years, analysts seem optimistic about the company’s growth.
Bear in mind that any and all of Tesla’s recent issues have little or nothing to do with its long-term strategy.
In only three months, showing once again that it is a company that knows how to get things done, Tesla completely restructured its flagship car. The Model S got a second engine, all-wheel drive and semi-autonomous driving, all without slowing down production.
With the Gigafactory reportedly moving ahead of schedule, 2,000 rapid-charging stations having been installed worldwide, and the mass-market Model 3 remaining on schedule for 2017, buying TSLA or not is entirely dependent on your perspective.
If you believe that EVs are the future, as I do, Tesla has a defensible, multi-year, multi-billion dollar competitive advantage that is growing every day. Choose wisely.