Tesla Motors Inc (TSLA) Valuation: The Harsh And Bitter Reality

Tesla Motors Inc (TSLA) Valuation: The Harsh And Bitter Reality
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Tesla Motors Inc (NASDAQ:TSLA) bulls defend the stock by arguing that electric vehicles are environment-friendly and are the future of the auto industry. Tesla Motors Inc (NASDAQ:TSLA) is the first mover in this territory, so the company can control a larger chunk of the market share, increasing its production and sales over the next several years. Their investors (or speculators) should get a reality check, says Achilles Research.

What Tesla bulls think

The primary notion of Tesla Motors Inc (NASDAQ:TSLA) bulls is that the Elon Musk-led company is going to own the entire electric car market, or will have a major advantage over other companies. However, Achilles Research says that the market is unlikely to move entirely to electric vehicles. Moreover, the United States doesn’t have the reputation of having a very high environmental conscience.

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Even if the U.S. market witnesses a large-scale transition to electric cars, you can’t assume that other companies will be sleeping at the wheel while Tesla Motors Inc (NASDAQ:TSLA) rules the market. Companies with deeper pockets such as Toyota Motor Corporation (NYSE:TM) (TYO:7203), Hyundai, Nissan, BMW are pouring in billions of dollars to develop fuel efficient vehicles that would compete with Tesla Motors Inc (NASDAQ:TSLA)’s Model S. Some of the clean energy automobiles are BMW’s i-Series, Toyota Motor Corporation (NYSE:TM) (TYO:7203)’s electric, hybrid and plug-in hybrid vehicles, Hyundai’s electric hybrid car Sonata and Nissan’s Leaf.

Comparing Tesla to its large-cap competitors

Tesla Motors Inc (NASDAQ:TSLA)’s much-hyped Model S has quarterly deliveries of 5,000-6,000 units. For the first nine-months of this year, the company incurred a net loss of $58 million. Its nine-month negative cash flow was $32 million. Tesla Motors Inc (NASDAQ:TSLA)’s P/E ratio is above 98, and P/S ratio of 10.58. The company’s stock shot up to $195 before falling to around $140 this year.

In contrast, the large cap automakers are in a much stronger financial position. Their sales are soaring. But valuations are much lower compared to Tesla Motors Inc (NASDAQ:TSLA). For instance, General Motors Company (NYSE:GM) delivered 2,555,921 vehicles between January and November this year in the U.S, and 212,060 vehicles in November alone. Its November sales soared 14% compared to the same month a year ago. But it trades at 8.8x forward earnings 0.37x sales. The U.S. government has sold its remaining stake in the company. So, Washington no longer has influence over the company.

Tesla One

On the other hand, Ford Motor Company (NYSE:F) has stated that last month is going to be its best month ever. Its November U.S. sales spiked 7% to 190,449 vehicles. Retail sales jumped 6%, passenger car sales were up 6%, while trucks sales surged 17%. Ford Motor Company (NYSE:F) expects to generate a pre-tax profit of $8.5 billion. Fusion sales went up by 51% YoY in November. But Ford Motor Company (NYSE:F) is currently trading at 8.55x forward earnings and 0.42x of sales.

Tesla Two

Tesla Motors Inc (NASDAQ:TSLA) bulls believe that it has unrivaled technology, and is going to rule the electric car market. But the truth is, says Achilles Research, companies with decades of experience in the automobile industry and much deeper pockets are developing their own electric and hybrid cars. Their diverse product portfolio and strong financial position will ensure that they can weather any unsuccessful product launches or economic setbacks.

Tesla Motors Inc (NASDAQ:TSLA) shares plunged 3.98% to $142.09 at 11:32 AM EST.

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