Tesla motors (TSLA) is severely overvalued, even on supposed "high future growth". You would have to be a fool to buy at such elevated prices. But then again, many investors are. How can such naive investor sentiment and exuberance go unpunished an unnoticed?
As Benjamin Graham has said, there is a difference between investing and speculating An intelligent investor should never confuse the two things to be the same. Tesla motors falls into the category of speculation, and anyone seriously considering this company as an investment should reconsider.
Today, espeically for Tesla, it seems as if analysing a companies financials is the fools way of valuing a company. Since clear financial problems do not persuade people, I thought I would start of with a little bit of logical reasoning.
(Tesla Model S) From Teslamotors.com
Overview of the Business
The company sells premium, high quality electric cars.
Tesla's flagship car, the Model S, currently sells at a low end price of $77,800 and a high end price of $103,000.
The problem with high end premium car companies is that, its just that, high end premium cars. Most people would not be able to afford such expensive cars, even on finance. With the average american salary in the $40,000 range, who in their right mind would even buy these cars? Price is the biggest factor affecting any purchase. Tesla is already excluding a huge base of customers. The only real customer I see shelling out this type of money for a car, would be the rich ($200,000+ annually), that only make up a small portion of the population.
Therefore, tesla is segmenting over 95% of the population in America.
On top of that, what would compel anyone to want to buy an electric car? There are much better, more cost effective fuel efficient cars on the market, and there are also many hybrids that bring the best of both worlds.
Take for example Ford's (F) new lineup of hybrid cars, the "C-max Hybrid". It is a much more cost effective car at only $28,000 and brings the benefits of electric, along with gasoline if needed. Most americans would be able to afford such a car on finance. It is also important to remember that most consumers are price conscious, and if they had to choose which electric vehicle to buy , they would no doubt go with the cheaper car (The Ford C-max hybrid) rather than the more expensive Tesla Model S.
Tesla motors is also facing increased competition not only from other established car makers, but from other electric car startups. Car makers from BMW to Toyota are all starting to make electric cars. Tesla's doaminice on the small electric car's market is coming to an end. There is so much competition, with more cost effective vehicles, from more established names, that by the time dust settles, Tesla would have a small fraction of market share.
More competition also means more pricing pressure and more margin compression, that will shrivel away the already small 7% gross profit margin.
For the overall business, I rate this company a D
Financials
The company only has tangible assets of $525.9 million, while liabilities start at a whopping $975 million. If we where to include intangible assets, the company would only have stock holder equity of $168 million. The company currently has a market value of $11 billion, and is trading at a significant premium to equity. So either, investors expect amazing growth, or they are buying nothing for something. The companies cash and receivables is only $440 million, which would not even cover half of its total liabilities. Making it an insolvent company. Even if Tesla experiences fast growth, how are they possibly going to finance it?
I see shareholders cheering about recent dismal profits, as if it was good news. Only making 3 cents per share on a 98 dollar stock. Even if the company could grow those earnings by 1000% the company would still be trading at a P/E of 300! There would have to be explosive growth that will not happen to justify these lunatic prices. With increased competition entering the market, you can expect to see Tesla's profits slowly dwindle away to nothing.
Currently Tesla has only had 1 profitable quarter, benefiting from an massive growth in revenue, to generate such small profit. Therefore, the likeliness of Tesla being highly profitable in the future is highly questionable, and revenues and sales would have to grow at an astonishing rate. Once again, an unlikely situation from increased competition, and market segmentation from high prices.
For financials I rate this company a D
Conclusion
Overall I rate Tesla Motors a D and a sell.
I would stay clear of Tesla at all costs. There are much better investments out there and this company is certainly not one of them. Tesla is severely overvalued, and may experience a major correction in the future.
Currently naive investors are discarding all logical reasoning and are buying up the stock to insane levels.
If you are thinking about shorting Tesla, I would do so through put options, and would not short. There could be a risk of further irrational thinking in the markets driving the stock up wildly, and you don't want to be caught up in that. But, you know just as well as I do, that the company has a dead business model, and is bound to disappoint in the future.
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