Tesla Motors Inc (NASDAQ:TSLA) CEO thinks the stock market is being generous with its valuation of the company, and it’s almost certain he’s right. The CEO made the comments on CNBC earlier in August, and since then stock has risen by more than 16%. If the CEO of a company publicly says its value is too high, investors should take a second look.
There’s no doubt that Tesla Motors Inc (NASDAQ:TSLA) has—and is likely to continue to have—a disruptive impact on the auto industry. The company is definitely not worth $20 billion on fundamentals, but, if investors are to be believed, it will be worth that or more in the years ahead. According to Forbes analyst Chuck Jones, Tesla needs to sell 100,000 cars in 2016 in order to support the current stock price.
Ramping up production at Tesla
The market will be watching Tesla’s ability to ramp up production in the next couple of years without harming the company’s margins or its traction with consumers too heinously. According to Jones’ analysis, Tesla Motors Inc (NASDAQ:TSLA) needs to sell 40,000 next year, and the numbers only go up from there.
The analysis is clear, in order to get Tesla Motors Inc (NASDAQ:TSLA) to a decent valuation metric, the company needs to sell 100,000 cars in 2016 at an average price of $110,000. That average price is revenue per car rather than sticker price. That means it includes tax breaks, carbon trading, and other sources of revenue, as well as the price paid at the Tesla store.
Subsidizing Tesla profits
The amazing success of Tesla Motors has led to a resurgence in programs designed to help environmentally friendly companies. The problem is that as those companies become more successful, the programs can become much more expensive, and the American tax payer is subsidizing Tesla Motors Inc (NASDAQ:TSLA).
The Federal Tax Credit this year for a Tesla Model S is $7,500. If that remains unchanged by 2016, and Jones’ numbers bear out, the Department of the Treasury will be seeing three quarters of a billion dollars head out of its coffers and into the electric car company. If Tesla Motors Inc (NASDAQ:TSLA) really is going to change the market, that tax credit will be lowered or stopped at some point, and investors will suffer.
Tesla Motors Inc (NASDAQ:TSLA) shares are unlikely to go up forever. There will be falls between here and Eden. Investors are just hoping that the company can keep growing and hitting targets over the long term.