Tesla Motors: Is It Time to Sell My First Double-Bagger?

Tesla Motors (NASDAQ: TSLA  ) reported first-quarter earnings last week, blowing away expectations and sending shares soaring. Less than four months after I first invested in this electric-car company, my shares have doubled. I'm a long-term investor, but a surge like this might be cause for concern. Should I take the Steve Miller Band's advice and "take the money and run"? Or should I listen to the Steve Miller Band and let Tesla shares "keep on a-rockin' me, baby"? Let's take a look.

Go on, take the money and run
Tesla bears have plenty to chew on. Before this quarter, the start-up automaker had never reported a quarterly profit, and many saw Tesla as little more than billionaire founder and CEO Elon Musk's latest pet project. With the connections and finances to get his company started, naysayers believed that this company's full-throttled idealism would soon have it sucking on financial fumes.

Even for those investors who believe in the future of the electric car, Tesla is hardly a stable or safe investment. Toyota Motors (NYSE: TM  ) made hybrid history with its Prius model and raked in $225.8 billion in revenue for fiscal 2012. That's 546 times larger  than Tesla's $413 million in sales.

There's even speculation as to whether electric cars have already had their heyday. With fuel efficiency at all-time highs, who needs electric when gas goes further? In China, Ford's (NYSE: F  ) 31 mpg Focus is the best-selling vehicle, and April sales up are up 41% compared with the same month last year.

Even if Americans hang on to their hemis, Ford's and General Motors' (NYSE: GM  ) new pickups pack more punch for less petroleum. GM's Chevy Silverado offers the most fuel-efficient V-8 engine to date, offering 23 mpg to would-be gas guzzlers.

Keep on a-rocking me, baby
But Tesla shares are up for a reason, and bulls are revving their investor engines louder than ever before.

If I thought Tesla was a direct competitor with the likes of Toyota or Ford, I'd tuck my tail between my legs and cash out today. The Blue Oval and its Japanese counterpart may be less agile than Tesla, but monster trucks don't need to aim when they crush ants beneath their wheels.

In reality, Toyota is actually a Tesla investor itself, and the two companies have massive consumer credibility to gain from double-teaming the efficiency advantage. Tesla poured 66% of its 2012 sales straight into R&D, paving the way for partnership potential in the years to come.

This quarter specifically, investors were elated to see Tesla turn a profit. At $15 million net profit, or $0.12 adjusted EPS, this growth stock is hardly a balanced book. Nevertheless, seeing green instead of red is always a plus for any serious growth stock. For me, I place more importance on the automakers' seasonally adjusted 83% increase in sales than its positive net income. In the words of Field of Dreams' Shoeless Joe Jackson, "If you build it, they will come."

As a final tip of the hat to Tesla's potential, Consumer Reports released a May 9 statement declaring its Model S the best car -- ever. With a score of 99 out of 100, the publication hinted at the future of vehicles when it stated that the Model S outrated all other vehicles "even though it's an electric car. In fact, it does so because it is electric."

Sell in May? I don't think so.
"Sold too soon" is a common sob story among investors, and I'm not going to let Tesla be one for me. Valuation is nearly impossible for a company with the growth potential of Tesla, and I'm sticking to my long-term investing rules when it comes to this stock. Barring an event of epic proportions (and a good quarter doesn't qualify), I hold on to my investments for a minimum two-year period, for better or for worse.

Tesla's stock may tumble in Q2 -- or it may soar. Regardless, I'm in it to win it and believe that Tesla has what it takes to keep electrifying my own earnings for years to come.

But don't just take my word for it. The Motley Fool has assembled the most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.


Read/Post Comments (10) | Recommend This Article (13)

Comments from our Foolish Readers

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  • Report this Comment On May 12, 2013, at 5:16 PM, sparky0604 wrote:

    Thanks for the thoughts and comments. As an alternative approach.....I sold the equivalent of my basis in the stock on Friday and will ride the 120% gain portion indefinitely.

    I'm concerned that the big run was as much a short squeeze as anything. If so, the run up was too fast and will likely recede in the coming weeks. I may use the opportunity to redeploy my "basis position" at a lower per share amount since I still believe in the company and the stock.

    If not, I played it safe and lost out on 45% of the ride while I invest in the next stock.

  • Report this Comment On May 12, 2013, at 5:29 PM, Pondee wrote:

    Does anyone know what the short interest is after the recent post earning/Consumer Reports report run up? Is the squeeze over?

  • Report this Comment On May 12, 2013, at 6:22 PM, colleran wrote:

    I still the like the advice that you sell a stock when you find another one with a much brighter future. At this point Tesla's future seems pretty bright.

  • Report this Comment On May 12, 2013, at 6:37 PM, AjitC wrote:

    Tesla is on the way to disrupt the automobile industry. They have to cross the chasm of key enabling technologies, manufacturing process plus develop a value and supply chain:

    1. Supercharger network - Tesla needs a nationwide supercharger network in the highways. A 6 bay unit costs $250k and the company needs at least 200, for a total cost of $50M. Needs the same in Western Europe, at least. Takes range anxiety out. Anybody else trying to deploy BEV will need to develop SC tech and deploy their own network.

    2. 500 mile battery - Elon alluded to this battery being available sometime. Needs to be sooner than later, at the same or lower price points and the current 85 KW-hr battery. With this battery, the driver can enjoy the ride with HVAC on, music, internet, pedal to metal... not limp along, or waste time at a Supercharger. Especially when spending in six figures for auto!

    3. Design/Manufacturing Process - I suspect that Tesla is busy redesigning the Model S components to make it easy to manufacture. Use jigs, guides on the parts so they "click" together to tolerance, before the robots do the tacking, welding, riveting, etc. Kind like welding lego like pieces after they are clicked together. Then the manufacturing can be speeded up with minimal rework. I think they will refine the Model S manufacturing before they start with Model X. I hope they get rid of the duck wing doors. Makes it look weird, not practical to have a rack, snow issues, etc.

    I expect production costs to drop significantly, except for the battery cost which falls at a slower rate. Unless we get disruptive graphene based battery tech, hi Mn Cathodes, improved electrolytes, (see Envia Systems), etc.

    Then there is Elon Musk. Would you bet with him and is track record, or with the shorts, naysayers, Sarah Palin, Fox News, etc?

  • Report this Comment On May 12, 2013, at 7:09 PM, alexf wrote:

    I doubled my money with Tesla already (also got in about four months ago and doubled my take last month). I plan to stay for the long run, definitely at least a year. We'll see. I'm bullish on them.

  • Report this Comment On May 12, 2013, at 7:57 PM, autoinsider wrote:

    Bulls make money. Bears make money. Pigs get slaughtered. If I had a two bagger, I'd GET OUT NOW!

    As an aside, five years from now or the during the next recession (there'll be others and they'll be worse than the last) Tesla will be a Bricklin, a Tucker, a DeLorean type footnote in automobile history.

  • Report this Comment On May 13, 2013, at 1:03 AM, AjitC wrote:

    DoLorean was a joke. It had no competitive advantage. Used a Renault engine. Company was poorly managed. Poorly capitalized. CEO has substance issues. About the same for others.

    Got to let winner ride. Cut the losers!

  • Report this Comment On May 13, 2013, at 3:44 AM, jamesdan567 wrote:

    the long run is not "at least a year".

    Tesla will have its ups and downs.

    In my estimation, the Tesla S car is about the same as the Intel 8088 chip. Or DOS 1.0.

    People found all sorts of reasons to be skeptics back then too, for when new technology emerges, its never as good as its going to get. I wonder why people forget.

    Tesla is not an auto company. Tesla is an energy play. Energy is 20% of the world economy.

  • Report this Comment On May 13, 2013, at 7:38 AM, speechisntfree wrote:

    what you should be looking at is Musk's other baby..... Solar City.

  • Report this Comment On May 13, 2013, at 10:00 AM, jimmy4040 wrote:

    Whether or not you believe in the car and the company itself, the current valuation of the stock is insane.

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