A Second Look At Tesla Motors Inc (TSLA): More Style Than Substance

A Second Look At Tesla Motors Inc (TSLA): More Style Than Substance
<a href="https://pixabay.com/users/Blomst/">Blomst</a> / Pixabay

Electric automobile manufacturer Tesla Motors Inc (NASDAQ:TSLA) has been the darling of Wall Street for some time now. The chic style of their autos and the attraction of owning a luxury electric automobile, combined with the mesmerizing personality of CEO Elon Musk, has led to the creation of legions of dedicated “Teslovers”.

The stock hit a recent peak of $176.81 on Nov. 5, but has since slumped to trade around $125 today largely related to news flow surrounding battery fires and the ongoing NHTSA investigation. The speculation regarding a possible recall has kept the stock under significant pressure the last couple of weeks.

George Soros And The Human Uncertainty Principle

The division between academic economics and the way traders look at the market is deep. The efficient market hypothesis assumes that markets and valuations are always pushing towards an equilibrium, and evidence to the contrary gets pushed aside as fluctuations or statistical deviations. But the dot com bubble, the

Bank of America rates Tesla Underperform

All of the hoopla surrounding Tesla Motors Inc (NASDAQ:TSLA) has led to very strong performance for the equity over the past 12 months, rocketing up to an all-time high of $193 in late September from $35 in December 2012.

According to Bank of America Corp (NYSE:BAC) analyst John Lovallo II, however, the Tesla Motors Inc (NASDAQ:TSLA) story is more hype than reality. He begins by saying that Tesla’s battery fire problems are a significant issue, and that investors should be concerned regarding possible steps by the NHTSA in response to this issue. That said, he argues that the Tesla long investment thesis has much more significant problems; namely, highly unrealistic future volume estimates.

Investors may lose focus from important metrics

BoA analyst Lovallo says the hype surrounding Tesla Motors Inc (NASDAQ:TSLA) is causing many investors to lose focus on important metrics, especially sales and revenues. He points out that Tesla would need to sell approximately 348K vehicles per year by 2020, or 16X expected 2013 volume, to justify the current market $125ish stock price. This volume figure also assumes 12.5% EBIT margins, which could be hard to achieve on the upcoming mass-market Gen 3 model. Lovallo argues this is highly unlikely given current and anticipated future electric vehicle market conditions.

Lovallo also reiterated BoA’s longstanding Underperform rating on Tesla Motors Inc (NASDAQ:TSLA) and their $45.00 price target.

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