Tesla Motors Inc (TSLA) Is An Ecosystem, But Is Valuation Irrational?

Tesla stockBlomst / Pixabay

Tesla Motors Inc (NASDAQ:TSLA) continues to be a hot topic of debate on Wall Street. Analysts representing both the bullish and bearish views of the company agree that it has created an ecosystem. However, bulls see more intrinsic value in that ecosystem, while bears continue to harp on the fundamental valuation of the automaker.

Speaking on CNBC, Tesla bull Matthew Argersinger, senior analyst of The Motley Fool, and Tesla bear Louis Basenese, chief investment strategist of the Wall Street Daily, duked it out on Monday.

Tesla’s ecosystem and customer experience

Argersinger believes Tesla Motors Inc (NASDAQ:TSLA) is all about creating not only innovative products, but also an overall customer experience in the form of an ecosystem. He compared the company to Apple Inc. (NASDAQ:AAPL), which also creates products at the high end of its market, and Starbucks Corporation (NASDAQ:SBUX), which spends little on marketing because of the strength of its brand.

He thinks the automaker’s success will translate to future vehicles and sees an exponential increase in the number of vehicles it will be able to produce over the next five years. The analyst even went so far as to say he expects that Tesla will have a $50 billion market capitalization in the future. He points to the high profitability of Tesla’s vehicles and the company’s 19% gross margins, which he thinks are heading up to 25%, just as the company promised.

Tesla’s fundamentals remain troubling

Basenese once again focused on the fundamental valuation of Tesla Motors Inc (NASDAQ:TSLA), saying that he agrees the automaker has created an ecosystem, but he says that the disruption has already occurred. He says he doesn’t see it as an automatic short sale candidate, even though the company’s market cap has gone from a “couple hundred million” up over $18 billion. He notes that disruptive technology companies traditionally trade at inflated valuations. However, he continues to see Tesla’s valuation as “irrational.”

He looked at the other automakers, saying that they trade at a price of sales below one. Tesla carries a price of sales above ten. In other words, he thinks that although Tesla Motors Inc (NASDAQ:TSLA) may disrupt the automaker, it won’t disrupt Wall Street itself.

“They may be ready to disrupt the auto market but does that mean they are going to disrupt way a business is valued? I don’t think so,” he added.

“Makes much more sense to find new opportunities than it does trying to squeeze more profits out of old ideas,” Basenese told CNBC.

What kinds of ideas does Elon Musk have?

CNBC anchors also asked Argersinger if he was investing in Tesla’s vehicles or in CEO Elon Musk. He admitted that Musk is “a huge part of the story” and said he wouldn’t want to bet against him. He also said he “can’t fathom” where Musk will take the company and believes it will reinvent the transportation industry.

So Musk just might have the new ideas Basenese wants to see.

Estimating China’s impact on Tesla

CNBC anchors asked both analysts how they view Tesla’s expansion into the Chinese market. Argersinger said he expects to see Tesla Motors Inc (NASDAQ:TSLA) sell between 10,000 and 20,000 cars in China, which would be a big incremental increase.

Basenese agrees that there may be demand for Tesla’s cars in China, but once again, he said the fundamentals just don’t make sense.

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About the Author

Michelle Jones
Michelle Jones was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Michelle has been with ValueWalk since 2012 and is now our editor-in-chief. Email her at [email protected]

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