The fortunes of electric car manufacturer Tesla Motors Inc (NASDAQ:TSLA) have been the subject of speculation for some time. Many investors have doubted Tesla for quite some time, and the company consequently attracted a huge amount of short sellers over the last few years. However, with its Model S vehicle proving to be the most successful electric car of all-time thus far, Tesla has continually denied the doubters.
Tesla’s share price surge
Tesla Motors Inc (NASDAQ:TSLA)’s share price surged 344 percent in 2013, and with more good news and solid plans for the future put in place this year, the company has surged another 70 percent so far in 2014. It is perhaps natural in this context that many people are questioning whether the stock might be currently overvalued, despite the successes of Tesla and its ambitious plans for the future.
ValueWalk's Raul Panganiban with Maurits Pot, Founder and CEO of Dawn Global. Before this he was Partner at Kingsway Capital, a frontier market specialist with over 2 billion AUM. In the interview, we discuss his approach to investing and why investors should look into frontier and emerging markets. Q2 2021 hedge fund letters, conferences and Read More
The company which has established itself as the main player in the embryonic electric car market has defied the doubters until now. But its ambitious plans to build a huge ‘gigafactory’ worth $1.6 billion has brought a few more Tesla bears out of the woodwork in the last couple of days.
The Bank of America Merrill Lynch analyst John Lovallo has long since bet against the corporation, which has to be fair left him with egg on his face to a certain extent. Yet he remains extremely bearish on the hopes of Tesla, stating that he considers the likely long-term share price target of the company to be around $65. This would be some 75 percent below the stock’s all-time peak of $265 which it reached earlier this week.
Lovallo believes that the gigafactory is an extremely capital-intensive investment that may not pay off in terms of returns. He is also skeptical that there is enough of a demand for Tesla Motors Inc (NASDAQ:TSLA)’s vehicles to satisfy the 500,000 cars that the plant will be able to manufacture on an annual basis. Certainly this would be a huge increase on their current figure of around 25,000 vehicles sold globally each year.
Elsewhere, CNBC’s Jim Cramer has also expressed doubts of the company’s ability to satisfactorily increase demand, and suggests that investors may be “playing with fire”. But not all investors are bearish on the company’s prospects.
Gigafactory could be dual-purpose
Adam Jonas of Morgan Stanley believes that the new gigafactory could serve an important dual-purpose. As well as enabling Tesla to elbow in on the high end players in the motor industry, it also offers the company the opportunity to “disrupt the trillion-dollar electric utility industry”. Far from expecting the Tesla stock to tumble, Jonas has raised his price expectancy for the stock to $320 per share; a 30 percent increase from current levels.
Tesla Motors Inc (NASDAQ:TSLA)’s share have have shot upwards on the news that the company intends to raise $1.6 billion in convertible bonds to help fund construction of its new manufacturing gigafactory. Some investors evidently see this as an overly ambitious potential millstone around Tesla Motors Inc (NASDAQ:TSLA)’s neck, while other see it as essential to the company’s future. Time will tell which is correct, but Tesla has a history of making critics eat their words.