Tesla remains an overvalued stock with a whole lot of growth already built into the price tag, and yet even still there remains tremendous upside. With a forward price to earnings ratio of nearly 180:1 it is easy to see how some bad news can leave investors rattled. That is exactly what sent the stock tumbling 13% a few months back when the falling price of oil drove concerns for slowing demand of the all-electric luxury sedan. Add to that missteps abroad, and more recently missed earnings and big quarterly losses and they have big implications for this ticker.
However, monstrous growth potential is there.
- The Tesla Model S is the first 100% electric vehicle of its kind that has been repeatedly rated as the top luxury car in satisfaction by Consumer Reports annual buyers survey. While this is obviously already built into the price, it is a huge factor in attracting future customers.
- Elon Musk, Tesla Motors founder and CEO, demands perfection from his company and product, and he has the brain, work ethic, and vision to reach it.
- The serious and growing threat of climate change will continue to play more and more of role in both consumer sentiment and government legislation, and there is no doubt zero-emission cars like the Model S will see increased demand from that. (Note: prolonged low prices at the pump could chip away at some marginal buyers, but not nearly as much as it will for more affordable EVs.)
- Tesla continues to invest its capital in infrastructure: 1) the Gigafactory battery plant will drive down the price tag (or increase profit margins) for future customers, and 2) the continuing and rapidly increasing rollout of supercharger stations will add value to the already 60,000 Tesla drivers out there. Combine that with growth strategies that include a soon to be released Model X crossover, and plans to build an affordable EV for the average consumer and it is no wonder why this company has attracted so much attention.
- Finally, Tesla is a cool company. They are business disruptors, technological innovators, planet protectors, and talented designers. Young people aspire to climb into the cockpit and be able to it their own. And as more and more of these young professionals advance their careers and eventually earn what it takes to purchase a top class luxury vehicle, I predict Tesla will sit atop of that list.
Of course, with all this upside comes serious risk – but I would argue most of that lies in the short term to moderate term and that downturns in stock price are nothing more than buying opportunities. Take a test drive, understand the business and management, and ignore the news. I am bullish on Tesla Motors for the long run.
(2/20/15) TSLA 217.11
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