Tesla Motors Inc (NASDAQ:TSLA), to everyone’s surprise has been performing exceptionally well in terms of both financials and share price.
The electric car makers’ flagship, the Model S, won the prestigious Motor Trend’s 2013 car of the year, and also received praises from the much relied Consumer Reports. The luxury car maker’s stock price has almost doubled in last one month and currently it enjoys a market cap of $10.6 billion, which is about $8 billion more from the veteran Italian automaker Fiat.
ValueWalk's Raul Panganiban interviews Joseph Cioffi, Author of Credit Chronometer and Partner at Davis + Gilbert where he is Chair of the Insolvency, Creditor’s Rights & Financial Products Practice Group. In the interview, we discuss the findings of the 3rd Annual report. Q2 2021 hedge fund letters, conferences and more The following is a computer Read More
Having attained so much in so little time, many fans are calling the company as the first successful new American car maker in more than a generation.
Musk –the X factor
The CEO of the company is following a different strategy to popularize the brand. Unlike the competitors who focus on moderately priced cars, Musk is trying to cater the premium segment with a sporty look sedan costing more than $80,000. However, the CEO has revealed plans to make the cars for the masses in the coming time.
The billionaire CEO has been quick to take advantage of the current run in the stock price, and made an announcement, just a couple of days back to raise $830 million in new stock and debt offerings. The proceeds from the offering will be used to pay the ‘low-interest’ loan from Energy Department. CEO himself plans to buy $100 million of the offerings, the news that further fuelled the share prices.
Is it a bubble?
However, some analysts doubts the title and thinks otherwise.
Moving deeper in comparison with Fiat, for the first quarter, the Italian company sold 1 million cars and earned a profit of $40 million. Tesla Motors Inc (NASDAQ:TSLA), on the other hand, sold a meager 4,900 cars, and excluding sale of regulatory credits under California law, incurred a loss of $53 million, or more than $10,000 per car.
Many analysts still believe that the surge in share prices is a bubble similar to the one seen with tech-era stocks. Tesla Motors Inc (NASDAQ:TSLA)’s stock is trading at about 600 times its estimated 2013 earnings. Analysts also argue that the price of regulatory credits, that saved Tesla Motors Inc (NASDAQ:TSLA), will come down in recent time as more companies will enter the market.
Even Musk in a letter to shareholders told “we expect [sales of credits] to decline significantly in future quarters.”
The success or failure of the California-based company depends a great deal on the U.S. policy and automotive strategy. Earlier, Energy Department loaned $465 million to Tesla Motors Inc (NASDAQ:TSLA) at very low interest, following the subsidies announced by President Obama for electric vehicles.
What will happen to Tesla Motors Inc (NASDAQ:TSLA), only time can tell, but one thing we can be sure off, under the guidance of billionaire and shrewd strategist, Elon Musk, Tesla will never be short of funds and ideas.