The debate continues about Tesla Motors Inc (NASDAQ:TSLA) and whether it is overvalued. Last week analysts at Jefferies changed up the numbers to account for lease accounting, which the EV automaker is adopting. That certainly changes the multiple quite a bit, but analysts at Bank of America Merrill Lynch just can’t get behind the stock, and they have 300,000 reasons why.

Tesla

Of course those 300,000 reasons boil down to one big reason and a number of smaller ones, with 300,000 representing the difference in Tesla’s 2013 projected sales volume and the volume BAML believes Tesla Motors Inc (NASDAQ:TSLA) would have to hit by 2020 in order to validate the high stock price.

BAML Maintains $39 Price Objective

Analysts John Lovallo II and John Murphy say they’re maintaining their $39 per share price objective for shares of Tesla Motors Inc (NASDAQ:TSLA) because they believe the stock is overvalued. They looked forward to calendar year 2020 as they attempted to “justify” the company’s stock price. Nonetheless, they say the numbers just don’t add up.

According to the analysts, the current $120 per share price on shares of Tesla implies sales of more than 321,000 vehicles in 2020, which is a 7 percent compound annual growth over seven years of 48 percent. They said the model also “assumes” the automaker’s earnings before interest and tax margins will be around 12.5 percent in 2020, which is 380 basis points better than the 2012 average of Mercedes, Audi, BMW and Porsche.

It’s worth noting though, that Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk said not long ago that Tesla’s margins would be better than that of Porsche. However, BAML analysts are still skeptical about the company’s ability to pull off numbers that would be high enough to justify the company’s stock price, in their view.

Tesla’s Sales Volumes

Lovallo II and Murphy looked at the lifecycle of more than 130 luxury vehicles and found that about 70 percent of them reach peak volume within two years of their launch. That would mean that volumes of Tesla’s vehicles could “begin leveling off within the next year, rather than growing into perpetuity as the current share price would suggest.”

There are a couple of things that are noticeably missing from this report however, and they mainly deal with the introduction of Tesla Motors Inc (NASDAQ:TSLA)’s mass market vehicle. First, they didn’t do any analysis of mass market vehicles and how long it takes sales volumes of them to level off. Second, they didn’t take into account the fact that electric vehicles are, by their nature, different than regular gas-powered vehicles.

Small Tesla Comparisons

While this analysis is by no means exhaustive, I spent just a few minutes examining sales volumes of potentially comparable vehicles. No doubt more analysis would shed greater light on this question, but it seems clear that simply comparing the Model S to other “luxury vehicles” isn’t enough in this case.

The mass market Nissan Leaf is indeed increasing its sales volumes, although by small margins. Data collected by Wikipedia shows that it started with 21,611 sales in 2011 and is now at 18,396 for this year through the end of June, which means it’s pacing to perform quite well in sales volumes more than two years after launch. In 2010 there were 38 Nissan Leaf vehicles sold.

When you look at the Toyota Prius, which some would say revolutionized the auto industry with an outstanding hybrid vehicle, you also see sales volumes climbing. In 1997, the year of the Prius liftback’s introduction in Japan, there were about 300 vehicles sold. By 2007, there were almost 300,000 vehicles sold, and that doesn’t include the other models of the Prius, like the Prius V or the Prius C. The number of Prius vehicles is still rising.

Tesla And The EV Market Size

BAML analysts also believe the global EV market size is going to “disappoint the optimists.” They point to a report published in April by the Clean Energy Ministerial, the Electric Vehicle Initiative and the International Energy Agency, which put 2012 EV sales at around 113,000, with 26 percent attributed to the U.S., and going up to 6 million by 2020.

They see this as “highly unlikely” unless there’s some sort of “significant breakthrough in battery technology and a massive build-out of charging station infrastructure.” They don’t believe Tesla Motors Inc (NASDAQ:TSLA) will be able to bring the price of its batteries down quickly enough or that drivers will be willing to trade the convenience of gas stations for environmental friendliness.

Tesla is planning to expand its supercharger network throughout North America over the next few years, so if it is successful, then that would handle the infrastructure part of their argument. As far as battery tech goes, we’re probably way overdue for a significant leap, so I don’t buy that argument either.

Other Arguments Against Tesla

We won’t go into all of the reasons BAML doesn’t like Tesla, but they did take a closer look at how lease accounting will affect the company’s financial statements. They believe the 25 percent margin promised by management may be hit but that margins will be inflated by lease accounting.

They also note that Tesla said that its projected 25 percent margin at the end of the year will not include positive impacts from the Zero Emission Vehicle credits it has been selling, although the company did not say if it will include benefits from the Green House Gas credits or Corporate Average Fuel Economy credits in the calculation. The analysts believe that these credits will also inflate Tesla’s margins.