The Question of the Stock Being Overvalued Finally Put to Rest
Navi Mumbai, Maharashtra -- (SBWIRE) -- 09/17/2013 -- With the price of the share skyrocketing in less than 52 weeks, Tesla Motors Inc. has reached a market capitalization of nearly $20 billion. Many doubt whether TSLA’s share price currently at $165 a share, is really worth as much as the market suggests. To put it differently, is the stock overvalued?
The stock trend in the last year: up more than 700%. This has been due to both positive news on the product front (Model S, X, Gen III and Superchargers), as well as on the financial front (increasing revenues, declining losses, paying down of debt). Readers are also encouraged to refer to reports by Earningsimpact.com earlier under Ideaz, as well as Q1 and Q2 Earnings Transcripts.
From a revenue standpoint, the value ($20 billion) is 15.4 times of current revenues ($1.33 billion). With last 12 month operating loss still at -$217 million, the firm is being valued more like a technology company than like a capital-intensive, mature auto manufacturer. Therefore, unlike revenues and earnings as of today, value should be driven by expectations in future.
So what is expected from Tesla to retain current growth momentum and value? The company is expected to scale up revenues manifold and improve operating margins at par with most profitable companies in the sector. However, as the company gets larger the growth will become more difficult and requires it to reinvest partially in assembly lines, factories to ramp up production and partially in R&D to stay ahead of the curve.
The firm is exposed to substantial business risk emanating from technological (electric/hybrid tech, chargers), automobile as well as macroeconomic (inflation, interest rates) parameters. As the company grows, it will have to look to emerging and more risky markets. The company is also exposed to other competitive/market risks and being still a young company has more probability of losing significant portion of its value.
To sum it up, it is expected that Tesla need to scale up its revenues, get profitable with no operating losses, should have investment plans and subside the risks that it’s currently exposed to.
Here one should not overlook the fact that Tesla Motors is ahead of competition in terms of innovation and delivery of high-quality vehicles, as evidenced by 5-star rating by National Highway Traffic Safety Administration for the luxury S-Model sedan in late August. It also inarguably leads the competition with its technology for longest range per battery charge. This could make one wonder, what does the competitive landscape look like? To put it in perspective, the electric car manufacturing industry is just warming up.
Recently, German manufacturer, Bayerische Motoren Werke or BMW unveiled its i8, electric luxury vehicle with 396 horsepower at the Frankfurt Auto Show. Currently priced at $135,925, the i8 is undoubtedly expensive than its luxury S-Model Tesla counterpart. But given BMW brand reputation and market presence, it can still be a worthy competitor. BMW also introduced its i3 city car at the event, priced at around $46,000. The i3 is expected to have nearly 160 km range i.e. almost half compared to S-Model.
More projects in pipeline include Volkswagen’s Audi brand Quattro Sport concept vehicle soon expected to go for sale. General Motors also intend to launch an electric Cadillac some time in 2014. All these vehicles are soon expected to compete with S-Model of Tesla Motors.
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