Tesla: Growth Story In The Making?

Tesla: Growth Story In The Making?


Lately it seems like everyone is trying to find a company Tesla Motors Inc (NASDAQ:TSLA) should be compared to. Lately Amazon.com, Inc. (NASDAQ:AMZN) is that company, and it’s a comparison that may make sense, especially if you compare the two company’s stock charts. Amazon is truly one of the greatest growth stories in the tech industry, so it’s worth considering whether Tesla will be another.

tesla motors amazon.com stock chart
Image via: CNBC

Signs of rapid growth at Tesla

The Globe and Mail contributor Chris Umiastowski considers this possibility. He points to several signs that Tesla Motors Inc (NASDAQ:TSLA) is growing rapidly. He notes that the company’s Model S sedan has been able to grab the top spot among luxury sedans with hardly any advertising and practically no physical retail presence.

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And then there are the company’s finances, which have greatly surprised investors twice this year. Last year the EV automaker’s revenue was a mere $413 million, this year it could increase fivefold. The company is also making progress on the 25 percent gross margin it promised by the end of the year.

Tesla is still expensive

Of course there is no denying that shares of Tesla Motors Inc (NASDAQ:TSLA) are very expensive, no matter which metric you look at. If the company hits its 25 percent gross margin target by the end of the year, earnings per share could grow to $3. With a $150 per share price target on the stock, the P/E ratio is 50, which is expensive.

But what investors are excitedly grabbing shares for isn’t about P/E ratios or anything else that’s as rational as basic numbers. It’s about the company’s future.

Investors looking toward Tesla’s growth catalysts

He points to two major growth catalysts at Tesla. The automaker just started rolling out its international Model S purchases. He believes European demand will match that of demand in the U.S. and that demand in China could even beat it. He doesn’t think it would be surprising if Tesla Motors Inc (NASDAQ:TSLA) was selling more than 60,000 vehicles a year within the next two years.

The other big catalyst is the launch of the Model X, which begins shipping next year. In his estimates, Tesla could be shipping 90,000 cars annually in three years with the addition of the Model X. That would add up to profits of between $6 and $8 per share. He said this scenario would justify the $18 billion market capitalization Tesla Motors Inc (NASDAQ:TSLA) enjoys right now, but it doesn’t explain why the company already has that market cap.

What about Tesla’s Gen III vehicle?

Optimism about the company’s Generation III vehicle is a key driver right now, but the vehicle isn’t expected to be out for four more years. Of course if Tesla does everything it says it can do, then the sky may be the limit for the company once the Gen III gets rolling.

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