Many investors and analysts see Tesla Motors Inc (NASDAQ:TSLA)’s valuation as being far too high, and even CEO Elon Musk thinks it is. The EV automaker’s market cap hit $20 billion this week, and it has been hovering right around that amount all week long.
Tesla’s market cap is now about a third of Ford Motor Company (NYSE:F)’s valuation. Is Tesla really worth that high valuation? Certainly not right now, but investors are hoping for big things in the future, and it’s those big things that could get Tesla in trouble if it doesn’t deliver. This is the danger so many analysts are warning about because the risks that the company will not keep beating expectations rise with every earnings report.
Joel Greenblatt Owned Hedge Fund On Why Value Investing Isn’t Working Now
Musk’s view of Tesla’s market cap
Last week CNBC asked Musk what he thought about his company’s recent share price increase, and he said he thought the market is being “very generous.” He also noted that investors are giving Tesla Motors Inc (NASDAQ:TSLA) plenty of credit for “future execution.”
Musk is apparently a bit concerned about the valuation investors have placed on the automaker, and for good reason. The higher the rise, the greater the fall, and if investors aren’t impressed with what the company does in the future, then its stock will drop like a rock.
“We need to make sure we really knock the ball out of the park over the coming years,” Musk told CNBC.
Tesla must keep coming out ahead
Tesla has managed to beat expectations more than once this year, but because of how rapidly the company’s stock price has risen, investors are likely to be less than forgiving if it does not at least meet expectations. It’s like two sides of the same coin, and Musk knows it. The more excited investors are when the underdog beats expectations, the more upset they could be later if things don’t go exactly as they hoped.
Nonetheless, Jim Cramer of CNBC’s Mad Money believes there are just too many good things about Tesla Motors Inc (NASDAQ:TSLA) to ignore.