Tesla Motors Inc (NASDAQ:TSLA) has been called overvalued many times over the course of 2013. When the stock opens today, Wednesday September 25, it will be worth more than $22 billion. The stock has gained close to 10% in the last five days’ trading.
Almost everyone investing long in Tesla Motors Inc (NASDAQ:TSLA) believes in the company. Investors are sure that the company can expand the electric car business into the mass market, but some are still nervous about the valuation of the company. Tesla is getting a lot of leeway, but there are certain things it will need to do in order to avoid a crash in the value of the company.
Warren Buffett: If You Own A Good Business, Keep It
Buying private businesses is easier than acquiring public firms, and investors should avoid selling good investments at all costs, according to the Oracle of Omaha, Warren Buffett. Q2 2020 hedge fund letters, conferences and more In an interview with CNBC in March 2013, Buffett was asked if he was looking at any businesses, in particular, Read More
Tesla hitting targets
Tesla Motors Inc (NASDAQ:TSLA) obviously needs to hit its earnings and sales targets in order to keep its investors believing in the company. That seems to be easy for the company right now as production capacity is the limiting factor. As Tesla ramps up production, demand effects will become more important from the company.
Analysts expect Tesla Motors Inc (NASDAQ:TSLA) to make 57 cent per share this year by consensus. That puts the company’s P/E for 2013 at just over 300 at today’s opening price. Tesla will need to hit or exceed that target in order to keep investors happy, and keep the stock from collapsing.
Avoiding disaster at Tesla
Apart from reaching its targets in general, Tesla Motors Inc (NASDAQ:TSLA) needs to avoid certain events that could kill the business early in its development. The first, and one of the most important, of these is the companies reputation for safety. Lithium Ion batteries have been known to explode. If Tesla Motors Inc (NASDAQ:TSLA) has a big safety problem this early in its business, it could kill the firm’s value.
Tesla Motors Inc (NASDAQ:TSLA) also needs to keep its financiers on its side. Although the company is heading toward a profit in 2013, it will likely still need money in the coming years for capital expenditure. Tesla Motors has a good relationship with certain investment banks. It will need to keep those relationships in order to continue getting its hands on money.
There are a lot of problems that Tesla Motors Inc (NASDAQ:TSLA) could face in the next couple of years that could destroy the value of the company. The potential reward for the risks the company faces seems incredible, but investors are going to have to decide their own level of risk aversion.