If there ever was an example illustrating why good timing is important in the investment business, it’s Tesla Motors, Inc. (TSLA).
For quite some time, the company wasn’t doing anything on the stock market until it garnered operational momentum combined with buoyant market conditions. Making the case for investing in the company now is difficult after its massive run up, but if the stock were to experience a major correction, the company would likely be worth a new speculative position. (Note that this is just an observation; not a recommendation.)
With Tesla currently boasting market capitalization of approximately $17.0 billion, co-founder Elon Musk is the business world’s new golden boy.
Tesla’s “Model S” is a beautiful piece of machinery, and it is silent on the road. Next year, the company will release its “Model X” hatchback, which offers an optional dual motor, all-wheel drive powertrain that is expected to accelerate from 0 to 60 miles per hour in under five seconds. The Model X has gullwing doors like the classic Mercedes-Benz coupe. Based on the pictures, it is brilliant design work.
The stock’s current overvaluation is typical of innovating companies on the cusp of major sales and earnings growth. Tesla is riding its own wave of enthusiasm as the only player in the marketplace selling an electric luxury sedan. BMW AG (BMW.DE) is right around the corner with its electric offerings; the company also has a hydrogen-powered 7 series sedan.
On the stock market, Tesla perfectly illustrates how useful it is to regularly check the market’s new 52-week highs. It’s an easy metric to help identify momentum trades. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
If the stars are aligning for Tesla, they should do so over the coming years in Europe, where the electric-vehicle infrastructure is much more prevalent. The company already has 13 stores in Western Europe and will soon open another 14.
Tesla will need to come back to capital markets for additional financial. The company has approximately $578 million in long-term debt, but $746 million in cash and equivalents.
The way Tesla is developing as an enterprise is bang on. The company is not only selling cars to the public, but it’s selling its electric powertrains to other manufacturers. Currently, Tesla is helping Mercedes-Benz develop an electric “B-Class” vehicle. The company is now the powertrain supplier (which includes a battery pack, charging system, invertor, motor, gearbox, and software) for the electric version of Toyota’s “RAV4.”
In its latest quarter (ended June 30, 2013), Tesla delivered 5,150 Model S cars. Combined with sales to Mercedes-Benz and Toyota, the company’s total revenues in its latest quarter were $405.1 million.
As you might expect, the company is in full expansion mode. It recently increased its weekly production rate to 500 vehicles per week from 400. Model S deliveries in Europe began just this month, and Tesla recently purchased 31 acres of land in Fremont, CA, for future expansion.
Tesla is going to have problems going forward, and it’s likely they’ll be with the supply chain. The company’s expenses are skyrocketing as it opens new stores and develops new models. It now has 41 stores and galleries open globally. This year, the company plans to open its first store in Beijing, China.
It’s great to see the wealth curve that innovation creates. Wall Street research ratings on Tesla are all over the map, which is no surprise. It’s very difficult to value a company that’s already an institutional favorite. On a major pullback, Tesla would be worth considering. What Musk is creating is entrepreneurship at its finest.