3 Reasons to Sell Tesla Motors

The market reacted very positively to Tesla Motors' (Nasdaq: TSLA  ) loss, which can be described not quite as bad as Wall Street expected. But there is still a lot of optimism priced into the stock, with a lot of dominos that have to fall just right to reach Tesla's lofty goals.

So why do I think the market has gotten ahead of itself? Here are the three biggest reasons why you should sell Tesla today.

Delays
Tesla is projecting its next vehicle the Model S to be available in mid-2012. There are high hopes for this model because it is a lower cost four-door sedan that will reach a wider audience. But product launches almost never go as planned. A123 Systems (Nasdaq: AONE  ) was crushed this week based largely on electric vehicle competitors delaying production. Competitor Fisker has delayed the Karma's debut, and Tesla's own Roadster was also delayed nearly a year because of a variety of issues. There isn't much you can count on in new product development, but a delayed launch is one thing I will bet on any day.

Competition
Tesla has been operating with virtually no competition to this point, but that's about to change. GM's Chevy Volt is hitting showrooms, Nissan's Leaf will be available next month, and the list goes on and on.

Tesla has arguably the most compelling vehicles in the electric car business. A relatively small number of initial buyers, however, will be spread over a growing number of manufacturers.

Value
Tesla is worth $2.7 billion and recently reported a quarterly loss of $34.9 million. The company isn't even expecting to report a profit until at least 2012, so there is a long wait for profitability.

A quick back of the napkin calculation shows just how far Tesla has to go. If we average Ford's (NYSE: F  ) 8.6 price-to-earnings ratio and Toyota's (NYSE: TM  ) 21.4 P/E ratio we get a pretty reasonable P/E of 15 to apply to Tesla.

To live up to a $2.7 billion market cap with a 15 P/E ratio, the company will eventually have to earn $180 million each year (before discounting). Tesla will barely reach half of that in revenue this year, so we're assuming a lot of growth and some pretty high margins on vehicles.

I hope Tesla is a wild success as a car company. I would love to own the stock, but I think investors are looking at this company through rose colored glasses right now. Leave your thoughts about Tesla in the comments section below.

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Fool contributor Travis Hoium does not currently own a Tesla Roadster but would love to get one for Christmas. He also does not own any stock mentioned here. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (10) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On November 12, 2010, at 9:02 PM, MaxTheTerrible wrote:

    I totally agree with competition probably being the chief concern. At present TSLA runs on pure optimism and I also feel that investors look at it through rose colored glasses (on top of rose colored contact lenses).

  • Report this Comment On November 12, 2010, at 9:15 PM, haid1 wrote:

    Another Tesla prediction to sell. Wow. There was a similar article when it was at 23. Now its near 30. I suppose I should expect to see the same sort of article on every bump up. Sooner or later, The Fool will be right.

    Comparing Tesla valuation to Ford or Toyota misses the point. Ford and even Toyota is large and boring. It is predictable. And like Microsoft they may be highly profitable.

    Tesla is none of those things. Tesla is small. Tesla is gutsy. And Tesla has proven that they have the tech lead by producing the roadster.

    Do you believe in the EV future? If not, run away. If you do, then who is most likely to be at the vanguard? The fact that others don't see it means that you have an opportunity profit while others make up their mind.

    Sure Tesla will lose money while tooling up for mass production. That just means that they are going large. Sure there will be up and down near term. The real question is, will Tesla be losing money 5 years from now.

  • Report this Comment On November 13, 2010, at 8:37 AM, rfurtado wrote:

    watch things change when oil hits 150 a barrel next year.

  • Report this Comment On November 13, 2010, at 9:17 AM, voyager721 wrote:

    As long as Toyota and Panasonic support this company it can only go but up. And there will be more to come.

  • Report this Comment On November 13, 2010, at 10:00 AM, TMFThump wrote:

    haid1,

    What Tesla has a long way to go to prove that there are actually enough customers willing and able to make them profitable. This is not a build it and they will come endeavor. Making their first vehicle a $100K roadster is not a business plan that makes a great deal of sense -- splash yes, cash flow no. The history of the automobile industry is littered with companies that began life trying to produce a sports car. DeLorean, Bricklin, Tucker ...

  • Report this Comment On November 13, 2010, at 10:20 AM, fljkto wrote:

    Toyota Says It’s Not Considering Additional Tesla Investmentat Bloomberg (Fri, Nov 12)

    Panasonic makes the batteries for Tesla so they have to put money into the company because if Tesla falls so does Panasonic. If only goes to $150 a barrel, Ford and Nissan will make a killing because of their prices. The only reason Telsa is at $30 because of the short squueze by the market makers. There are 6.6 mil shorts on Tesla. Listen to ALL the facts and not just fantasy thinking. And everyone in fantasy land PLEASE BUY Tesla Stock at $30 and up. Please! Put your money where your mouth is. You will see what your investment fantasy costs you!

  • Report this Comment On November 13, 2010, at 7:50 PM, haid1 wrote:

    killtheump,

    An EV is fundamentally as simpler and more reliable car. Sooner or later EVs will find a place. But you are right, there is a lot of risk. Maybe it won't happen for a decade. Maybe one of the big players will own the market. Maybe some accident by someone using Tesla or some other UV will set back the clock for a generation...

    As for Tesla's business plan, it seems simple enough to me. Kill the bad rap about UVs being golf carts with a world class sports car. Charge 100K to soak the early adopters, at a time when you couldn't really produce volume anyway. Use the resulting IP to drive down the cost for the model S. Tesla has said that they intend on a car in the 30K range in about 4 years (after an SUV).

    Even if they don't make it as a consumer car, there is the IP play for supplying others.

  • Report this Comment On November 13, 2010, at 8:08 PM, haid1 wrote:

    oops I mean EV (electric vehicle) not UV.

  • Report this Comment On January 17, 2011, at 1:29 AM, PoundMutt wrote:

    "killtheump,

    An EV is fundamentally as simpler and more reliable car. "

    Until you run out of juice and get stranded without a charging hookup. Gas stations are FAR more readily available.

    Also, what about WINTER DRIVING with temps averaging BELOW 20 deg F?

  • Report this Comment On July 06, 2013, at 9:37 PM, bufnyfan1 wrote:

    Thank GOD I didn't listen to you--actually bought more and was very richly rewarded--I will now put my 5K shares in the drawer and forget about them--I'll let Mr. Musk do his "magic"

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