Tesla Motors Stock Is Incredibly Overvalued

WASHINGTON – I have written before that Elon Musk, the founder of Tesla Motors, is a real pioneer. With dogged determination, he proved that it is possible to make an attractive, high performance, highly desirable electric vehicle. Now Musk is trying to go to the next level, by creating new, lower priced models that will be affordable for the general buyer.

Overvalued stock

All this is good. What is not good, however, is the incredible ascendance of Tesla’s stock. It grew more than 70% in 2014. It retreated a bit more recently, but it is still fantastically high.

Consider this. Right now, the market capitalization of Tesla is about $ 26 billion. And yet Tesla makes only 33,000 vehicles a year. Fiat Chrysler is worth about $ 20 billion, considerably less. And yet Chrysler made 1,8 million vehicles in the US in 2012. The group’s worldwide production was 2.37 million.

Ford is worth about $ 60 billion, a bit more than double Tesla’s value. But Tesla’s total annual production is the equivalent of the number of cars Ford makes in just one day. Got that? A full year production versus just one day.

How about another interesting comparison? As a recent WSJ article put it: “Tesla sells about 90 cars a day. GM sells 90 every five minutes. But Tesla is worth nearly half as much as GM”.

And, by the way, Tesla is not profitable. In the first 9 months of 2014 it lost $ 186 million.

What’s going on?

So, what is going on here? I am not sure. But, whatever it is, as a minimum it is not healthy. Worse case scenario, those who buy Tesla’s stock at these prices are certifiable.

Look, we understand that stock valuations are a reflection of what investors believe to be not so much today’s value of a company, but tomorrow’s. A high stock price is a vote of confidence on future prospects.

And it may very well be true that Elon Musk is onto something really big. It may very well be that Tesla’s new, lower priced electric vehicle models will engineer a major revolution in the automotive world. Hence the vote of confidence that yielded this fantastic stock valuation.

Think again

And yet, think again. Tesla’s total production is the equivalent of what Ford makes in just one day. But Tesla’s market capitalization is about half Ford’s.

This is absolutely crazy.