Tesla's Ridiculous Valuation Explained in 2 Figures

There really is no way to deny it anymore: Elon Musk is a genius. The man has brought us the first mass-produced electric vehicle that's profitable, and he's also on the cusp of revolutionizing solar energy in the consumer and business segment through his solar panel leasing company SolarCity. But just because he's a front-runner for CEO of the decade doesn't mean I have to like his pride-and-joy EV-producing company, Tesla Motors (NASDAQ: TSLA  ) .

I freely admit my biases toward Tesla. In fact, I'll state upfront that last Thursday I went short shares of Tesla at $124.75 per share. Even before I share with you the reasoning that put me over the top and caused me to pull the trigger on this trade, let me expound on some of the reasons that have caused me to be leery about Tesla in the first place.

Source: OnInnovation, Flickr.

3 big reasons to avoid Tesla
Reason No. 1 is trust. Elon Musk has certainly delivered on his promise to bring mass-produced electric vehicles to America, but there have been a considerable number of broken promises along the way. Although Tesla Motors has managed to hit or beat production targets in two straight quarters, over the preceding two years there were far more missed targets than made. In fact, in March, Tesla announced that it was pushing back production of its Model X all-electric SUV to late 2014 from its expected production date of late 2013. I consider this just another in a series of pushbacks for Tesla, and regularly question whether it can meet its self-imposed deadlines.

The second reason I've been skittish about Tesla is EV infrastructure. Now, don't think for a moment that I'm completely biased against all EVs. I can definitely see the environmental advantages of EVs with regard to the fact that they produce no emissions. However, as a realist, I also understand that it's going to take years and millions upon millions of dollars to get the proper infrastructure in place. There are quite a few reasons to buy a Model S electric vehicles and a laundry list that's 10 times as long as to why not to. One reason on that laundry list is the lack of appropriate infrastructure (i.e., charging stations) to make long-distance travel feasible.

The third factor that's always made me skeptical of Tesla relates to whether it could expand without any hiccups. We've already established that Tesla Motors has a sketchy history at best of delivering on its promises, so when Elon Musk noted this week that he anticipates car production to jump from 400 to 800 EVs by late 2014, my skepticism alarm went off. If history is any indication, this probably isn't going to occur into well into 2015.

These are just some of the factors that caused me to issue an underperform CAPScall on Tesla a long time ago.

Well, guess what? That call went horribly wrong! Tesla shares quadrupled in just a matter of months following the company's first-ever quarterly profit and the complete prepayment of its $465 million loan from the U.S. Department of Energy. It didn't matter that the valuation didn't make sense, or that Tesla had a history of missing its production targets -- simply showing that EVs could be profitably produced was enough to send shares rocketing higher and shake the foundation from under General Motors (NYSE: GM  ) and Ford's (NYSE: F  ) feet.

Two figures that make Tesla look terrible
Then, last week, out of a combination of a long-term dislike for Tesla's valuation and a love for creating my own indexes, I decided to work out a comparative index that would look at Tesla's value as compared with its production and profitability, and use those figures to compare Tesla against General Motors and Ford, the two U.S. juggernauts, as well as globally dominant brands Toyota (NYSE: TM  ) and Honda Motor (NYSE: HMC  ) . The results were nothing short of laughable.

First we'll simply look at current market value as of yesterday's close versus 2012's production. In the case of Tesla I gave the company the benefit of the doubt and used this year's projection from Elon Musk of 21,000 units. Here's how the results stacked up:

Company

Market Cap

2012 Production

Value/Car

General Motors

$49.73 billion

9.288 million 

$5,354

Ford

$65.26 billion

5.708 million 

$11,433

Toyota

$204.16 billion

9.692 million 

$21,065

Honda

$68.61 billion

3.137 million 

$21,871

Tesla

$12.6 billion

21,000* 

$600,000

Sources: Yahoo! Finance, annual reports, author's calculations. Tesla's production based on 2013 estimates.

I wish I could say this was some sick and twisted April Fool's joke, but it's not.

GM takes the cake with the lowest valuation by far at just $5,354 in market value per car produced in 2012. I believe a lot of that figure can be blamed on GM's tarnished reputation with the American public, stemming from its $49.5 billion loan from the government to help it maintain operations while it restructured under bankruptcy.

Ford is also relatively inexpensive at just $11,433 per car. When you consider how rapidly Ford is growing in Asia -- 47% unit growth through the first six months of the year -- it's not hard to see why I recently added Ford to my Basic Needs Portfolio.

The Japanese carmakers are a bit more expensive, but with notable reason. For Honda, it's because it derives only 73% of its revenue from automobiles. Motorcycles account for 17% of sales, with other segments chipping in the other 10%, and they aren't counted in its 2012 production figures. That has the effect of skewing its $21,871 figure a bit higher than it actually is! Toyota is just dominant, with the company projected to earn in the forward-looking year as much as GM, Ford, and Honda, combined!

Source: Steve Jurvetson, commons.wikimedia.org.

Then there's poor old Tesla at $600,000 per car! That's 10 times more than the Model S costs, and that's under the assumption that every cent went to Tesla as profit and its costs were zero, which we know not to be true. Even if Tesla managed to double its production by late 2014, it would only lower its market value per car to $300,000, which is close to 30 times more than Ford!

But it gets even worse ...
If that's not enough to prove to you that Tesla's valuation is ridiculously out of whack, then relax, because I took it another step further by examining future profit expectations in relation to 2012 production totals.

First, I multiplied each company's projected EPS in the forward year by total shares outstanding to derive a projected profit total for the forward year. I then divided that assigned profit projection into 2012's total production to get a sense of what investors are currently valuing the profit to be on each car made (in this case a lower figure would signify a more reasonable valuation, so don't be confused by Tesla's higher figure). Finally, I divided that profit-per-car projection into the overall market value-per-car figure that we calculated above to obtain what I'd like to call my TMFUltraLong margin estimation, where the higher the figure, the more reasonable the valuation.

Here's how things stacked up:

Company

Projected Forward-Year Profit

Assigned Profit/ 2012 Production

TMFUltraLong Margin

General Motors

$5.9732 billion

$643

12%

Ford

$6.6024 billion

$1,156

10.1%

Toyota

$17.5854 billion

$1,814

8.6%

Honda

$5.4 billion

$1,721

7.9%

Tesla

$103.995 million

$4,952

0.8%

Sources: Yahoo! Finance, annual reports, author's calculations.

Somehow, investors have projected that Tesla is worth nearly $5,000 in profit per car, yet they're willing to assign a value of $600,000 per car when all is said and done. All told, that would be a TMFUltraLong margin of less than 1%!

On the other end of the spectrum is GM and Ford, with TMFUltraLong margins in excess of 10%. What this figure tells me is that investors have reasonable expectations for GM and Ford's growth and perhaps may even be undervaluing the potential of both companies.

Expect more downside
As I mentioned, owning short-shares in Tesla certainly adds to my bias against the company, but I foresee considerable downside potential following yesterday's downgrade by Goldman Sachs. In my opinion, even placing a premium on its game-changing technology, Tesla is overvalued by somewhere in the 50% to 60% range. Although I probably wouldn't hold my short shares to those lengths, I have no intentions of cashing in this thus-far winning trade anytime soon.

Regardless of whether you believe Tesla is overvalued, the future of all car major car companies runs through China! China is already the world's largest auto market -- and it's set to grow even bigger in coming years. A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market," names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free -- just click here for instant access.


Read/Post Comments (53) | Recommend This Article (12)

Comments from our Foolish Readers

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  • Report this Comment On July 17, 2013, at 6:32 PM, SteveTG3 wrote:

    General Motors,

    Ford,

    Toyota,

    Honda,

    1,000+ models introduced, reviewed by Consumer Reports. Cars achieving highest rating, 1.

    Tesla, 1 car reviewed by Consumer Reports. Cars achieving highest rating, 1.

    You say there's a list 10 times as long not to buy a Model S as to buy one. Yet you only list one reason... infrastructure, and that one is solved within two years. Are we really to take your unnamed "10 times the reasons not to buy" seriously?

    fwiw, here's why charging infrastructure is solved in two years. Beyond charging at home for driving days 225 miles or less, and Supercharging for days 150 miles or more (you'll note these overlapping realms comprise all scenarios), what additional infrastructure exactly do you see as missing?

  • Report this Comment On July 17, 2013, at 6:37 PM, jamesdan567 wrote:

    So, if I gather the conclusion correctly, you are short Tesla because its the most profitable company per car by a long shot, even though its only its first car, but you justify this by showing that Tesla's valuation is $600K per car built, even though none of the other car makers know how to build a profitable EV.

    Maybe you should value all the companies based on who builds the best EV, since the EV is 400% more efficient than the ICE cars they build and the entire future (thats what we investors look at) is a world where EV's are the only car being sold new in just ten short years.

    About right? Selling Tesla short is a very bad idea. Or do you think EV's won't be the future? Hmmm? If not, then maybe you can explain why all of a sudden every car maker in the world is scrambling to put some kind of EV offering on the table...

  • Report this Comment On July 17, 2013, at 6:39 PM, SMFT wrote:

    Dang, UltraLong. You write an article about shorting the stock, then the stock goes UP 10% on the same day!!!

    Tell me who you're shorting next, and I'll jumo in and buy before you write about it.

    Kidding. I believe your analysis. TESLA is just overpriced, period. I made nice money on them, but sold before they hit the $90 mark, feeling I had waited too long even then.

  • Report this Comment On July 17, 2013, at 6:43 PM, TMFUltraLong wrote:

    SteveTG3,

    Infrastructure is a gigantic reason. There are few service stations that'll be capable of working on a Tesla. If you run out of power there's not exactly anywhere you can just pull over and plug in. Want to go across the country? Forget about it... not happening in a Tesla unless you plan to take 2 weeks.

    The price point of the Model S also places most Americans on the outside looking in.

    Sean

  • Report this Comment On July 17, 2013, at 6:45 PM, AlaaSadek wrote:

    How about an army truck or tank that can move like a motorcycle. Can not be detected by infrared cameras. Can travell twice as far as a gas driven?

    Elon said that they will make all types. I take it as a hint that he might get a BIG FAT contract with the army.

    Now will you buy Tesla?

    Ah alomst forgot. You can swapp the battery faster than filling the truck or tank with GAS

  • Report this Comment On July 17, 2013, at 6:46 PM, TMFUltraLong wrote:

    jamesdan567,

    It's actually the least profitable company by a long shot. Investors are valuing the company at 10 times the cost of the Model S before you even get into the expenses to build the car which include parts, labor, etc. By these standards alone it's overvalued by a factor of probably 20!

    As for the future of EV's... as I mentioned in the article, they are viable... perhaps 10 years from now when more infrastructure is in place and the cost of building these vehicles comes way down.

    Sean

  • Report this Comment On July 17, 2013, at 6:47 PM, TMFUltraLong wrote:

    SMFT,

    I actually wrote the article on Monday but couldn't post it until now because of the Fool's disclosure policy. It's going to be a volatile holding, that's for sure.

    Sean

  • Report this Comment On July 17, 2013, at 6:48 PM, TMFUltraLong wrote:

    AlaaSadek,

    That better be a multi-billion dollar up front contract otherwise Ford, GM, and just about any automaker will still be a better buy based on valuation.

    As for the battery swap, I've heard about the potential to build these quick-stop stations. Again, it's another huge cost that likely isn't going to reap benefits for another decade at the earliest.

    Sean

  • Report this Comment On July 17, 2013, at 6:52 PM, jamesdan567 wrote:

    85 kilowatt hour battery on the Tesla S model.

    At my home, that costs $8.50 to charge ($0.10 per kilowatt hour)

    In my area, premium gas is $4.35 per gallon.

    So, I can buy 1.95 gallons for what it cost to charge the Tesla S

    EPA rated 265 miles of range Tesla divided by 1.95 gallons = 136 miles per gallon. 136 mpg divided by 25mpg (comparable BMW 7 series) = 544% more efficient than the ICE car.

    Anyone want to argue with EV's being just 400% more efficient?

    What's a Euro person going to buy when gas there is $8 per gallon and the Tesla MPG rating is 250 MPG.? Care to venture a guess?

    When the affordable Tesla EV's are released which one are you gonna buy?

    A crappy looking Prius at 50 MPG or a classy Tesla at 136 MPG.

    Because folks, the Gen 3 Tesla will not cost more than a Prius....

  • Report this Comment On July 17, 2013, at 7:06 PM, drax7 wrote:

    Lousy analysis. Consider tesla a technology company, EV is the future and tesla is leading.

    And now the lead has increased .

    Your Promises commentary is pure garbage . Elon is not a sleazy car salesman.

    However, once you succeed at getting the assembly line to work, extending the hours or duplicating it, is dramatically simpler. 800 is a low production. estimate, production could well be much higher.

  • Report this Comment On July 17, 2013, at 7:11 PM, jamesdan567 wrote:

    no infrastructure?

    Its electric.

    people riding horses said there was no infrastructure for

    cars back in 1910. History shows infrastructure arguments are just plain BS.

    So, you still riding your horse?

  • Report this Comment On July 17, 2013, at 7:17 PM, TMFUltraLong wrote:

    Jamesdan567,

    Cars took decades to take off. Investors assume that Tesla can ramp up production 20 to 30 fold in 2 years based on its current valuation. Not going to happen.

    Sean

  • Report this Comment On July 17, 2013, at 7:17 PM, Jason91789 wrote:

    Tesla stock is a "cult stocks" that why all the long doesn't care what anyone say! Do all the short, think so?

  • Report this Comment On July 17, 2013, at 7:30 PM, borlock wrote:

    So your whole argument is, Tesla is valued at $600'000/car.... hence Tesla is overvalued by "somewhere in the 50% to 60% range".

    Really? Are you seriously making an argument that if Tesla is valued at "only" $300'000 per car then suddenly it will be a great buy compared to GM/F/Toyota?

    If you really want to use that comparison for fundamental analysis you have to argue for a share price of around $4. Of course everybody will laugh at you if you do... so you try and sneak in somewhere in between and hope nobody catches the fact that you just called $300'000 / car as being the value play.

    This has absolutely nothing to do with any kind of fundamental analysis and is all about trying to shill up your own personal short portfolio.

    And by the way, the Goldman Sacks PT released yesterday was an upgrade, not a downgrade.

  • Report this Comment On July 17, 2013, at 7:36 PM, MichaelHamilton wrote:

    Like most genius's Elon Musk is also quite mad.

  • Report this Comment On July 17, 2013, at 7:43 PM, TMFUltraLong wrote:

    Borlock,

    My valuation takes into account intangibles like Tesla's technological edge and its ability to expand production a few years out... as well as yesterday's closing value. So with that being said, I'd say $45 might be a more appropriate value for Tesla (and even that could be pushing it).

    Sean

  • Report this Comment On July 17, 2013, at 8:24 PM, borlock wrote:

    So if you include "ability to expand" production a few years out, why limit it to 42'000 cars/year?

    How is this anything other than... "ok, I like $45 as a number. Let's see how many cars Tesla has to sell to get there... ok, so they're going to sell that many cars".

    I see no evidence of $45 being any more of an appropriate valuation than $145. Both are based on pie-in-the-sky numbers.

    I do know however, if GM sells 10 million more cars than they do, for GM that's up by 100%.

    If TSLA sells 2 million more cars than they do, that's up by 1000%.

    Which of these two scenarios do you think is more likely to happen first? My money (literally) is on the second.

  • Report this Comment On July 17, 2013, at 8:33 PM, yamandou wrote:

    so simple!

    what is the value of a PAST Durty company against a Clean New Company that represent the future.

    and that is why the world believe in that brand.

  • Report this Comment On July 17, 2013, at 8:42 PM, NavyChum wrote:

    In my work, I've had manufacturing and management guys at GM, Toyota, Ford, MB, and Chrysler as clients. They are nice well-intentioned good folks. But if you compare the guys there with the guys at Tesla, it's not even a fair fight. The guys working at Tesla are simply way smarter and get things done fast. No chance the Model S could ever have come out of Detroit. ZERO. Go head and load up on GM. Brother.

  • Report this Comment On July 17, 2013, at 8:58 PM, Borg1977 wrote:

    I think I will start writing contributions for Motley Fool, because as far as I can tell, you don't need any qualifications.

    Having said that. First of all, Tesla had to start everything from scratch. That costs a lot of time and money. They will have to build the supercharging stations, $500,000 a piece. Of course the cost per car is high because it includes the start-up costs.

    But once everything is in place, they will start making money. People are paying for the potential Tesla has.

    You don't send a talented kid to music school and start complaining the first day because he is not an opera singer yet. But the kid has the potential if he takes studying seriously.

    You don't complain about how little an egg is worth when you know you will hatch chickens that will lay eggs and after a while you will have many-many eggs for just the cost of that one egg + some grass, grain and water.

    What costs more is the start. After that, it is smooth sailing for Tesla. You are very brave for shorting this stock. It is like betting against a tsunami or a hurricane that can't be stopped once it has started. Electric cars and especially Tesla is such a force of nature.

  • Report this Comment On July 17, 2013, at 9:02 PM, Borg1977 wrote:

    BTW, you could have said the same thing about Microsoft in the beginning. What is so valuable about a primitive computer interface?

    Well, it was valuable because many people needed it and their number grew exponentially. Same thing with electric cars. One day every single car will be electric.

  • Report this Comment On July 17, 2013, at 9:08 PM, c20916 wrote:

    Here's what I don't get with the argument about infrastructure. How many times has anyone driven across the country? How many of you drive more than 200 miles in one day? I understand there are people that take long road trips, and you're right at the moment that would be tough to do in a Model S, but if you're buying this car it's not because you want to take it and drive across the country. I can't afford one but I will most certainly be buying the Gen 3 car as I drive 30-40 miles a day and can't wait to never have to buy gas again.

  • Report this Comment On July 17, 2013, at 9:14 PM, TMFBlacknGold wrote:

    @Borg1977

    "BTW, you could have said the same thing about Microsoft in the beginning."

    Microsoft has been a tremendous long-term investment from the very (emphasis) beginning, but shares of the company have returned (39%) since the turn of the century. Similarly, I don't see much profit in shares of Tesla for investors at current prices.

    --Maxxwell

  • Report this Comment On July 17, 2013, at 9:41 PM, rhealth wrote:

    All of these comments are excellent. This article is not well thought out and misses the basic premise that the established autogopoly (see what I did there?) has had decades to perfect their processes and lower their costs to the bare minimum, lowering their cost per car to ridiculous levels. What they lost in the process was the ability to innovate. I saw "revenge of the electric car". What the big names have managed to create with their vast resources is a joke. Listen to Navychum.

  • Report this Comment On July 17, 2013, at 9:58 PM, SteveTG3 wrote:

    Very well, Sean, at least now I can see where you are coming from...

    -you are unaware of the Supercharger network, refilling the car in 35 minutes, which will have NY to LA capability this winter, virtually all of U.S. mid 2015.

    -you are unaware of the battery swapping technology is faster than filling a gas tank and rolls out beginning this winter.

    -you are unaware of the existing service center network and the aggressive growth plans for it over the next year.

    -you are unaware that as EV the model S has far fewer parts requiring service.

    - you are unaware that these batteries will only become more compact and cheaper... taking range from 250 to 400 in roughly 5 years, 600+ in a decade.

    so to sum up, you've shorted the stock and publicly denounced Tesla as ridiculously valued unaware of it's product and competitive position.

  • Report this Comment On July 17, 2013, at 10:00 PM, s2dbaker wrote:

    The infrastructure argument against Tesla is odd. Right now and up through 2015 when the "infrastructure problem" is solved, the people who can aford a Model S also have another gasoline powered car for those occasional trips to grandma's house.

    Other than a long range drive, your "infrastucture problem" is solved when you get home and plug in. There are many reasons that Tesla is overpriced but invoking the infrastructure argument makes the rest of your points suspect.

    Market value per car? That's not a serious metric. For example, no one looks at Intel and asks how much the market value is per chip sold. It tells you nothing.

    Good luck with your short sale. You may make money but not for the reasons that you've cited.

  • Report this Comment On July 17, 2013, at 10:06 PM, rav55 wrote:

    Electric cars run on coal. The exhaust fills the valleys of the coal power plants, and turns rain into acid.

  • Report this Comment On July 17, 2013, at 10:23 PM, Borg1977 wrote:

    @rav55

    ...except when the completely free and clean sun energy is being used as Elon Musk is planning.

  • Report this Comment On July 17, 2013, at 11:27 PM, FordRules wrote:

    From what I've been able to see, a Tesla is overpriced for one reason only--it has a cult of personality surrounding it that is supposed to make us forget its exorbitant price, as well as infrastructure issues that make it a far less convenient vehicle to own than conventional cars. And everybody who does NOT buy one had best keep the above reasons to himself even if he's asked why, or all the EV zealots will scream that he's a Luddite whose primary motive is destroying the environment rather than owning a usable vehicle.

  • Report this Comment On July 18, 2013, at 12:17 AM, wheelguy wrote:

    When I first started reading this article, I wondered if Sean was on the big three's payroll. By the end, I was convinced that he was innocently unaware, and really into making cool charts ;)

    I'm really glad I read this. I got a job offer from Solar City in an email the other day and thought it was spam. I guess I better open it and check it out.

    Thanks Sean, that was probably the best thing to come out of this article ;) Let me do you a solid in return...some advice...you may want to hang onto that stock, bro ;)

  • Report this Comment On July 18, 2013, at 12:21 AM, Norselord wrote:

    When the American consumer's knowledge of basic physics catches up to his desire for shiny things he will discover one thing: regardless of the type of energy, it takes the same amount to move a certain mass a specific distance. 1kW of energy derived from coal will drive a car just as far as 1kW derived from automotive gasoline. People are under the impression that electric cars are "clean" -- they are NOT. They merely displace the pollution from the tailpipe to the exhaust stack of a power plant. When all is said and done, John Q. Public will discover that electric cars actually pollute more per driven mile than efficient gas cars. When that knowledge becomes accepted, the value of electric car companies will plummet.

  • Report this Comment On July 18, 2013, at 1:10 AM, kankemike wrote:

    @Norselord You are considering a small portion of gasoline waste. What about all the coal used to produce gas and transport it to the pump? If gas more more affordable and green for the earth, why not run our homes using gas rather than electricity?

  • Report this Comment On July 18, 2013, at 3:02 AM, john2000young wrote:

    Motley Fools Suck.

    They recommended TSLA in the Stock Adviser program. Now they want to avoid TSLA.

  • Report this Comment On July 18, 2013, at 3:18 AM, stainlesssteel77 wrote:

    @Sean Williams/TMFUltraLong

    "GM takes the cake with the lowest valuation by far at just $5,354 in market value per car produced in 2012….Then there's poor old Tesla at $600,000 per car!"

    I could just as well define my Hammerstein-Fibonacci-Discombobulo Ratio of cars per $ spent on unionized workers:

    GM 9.28 milliion cars for $5.0 billion in wages = 9.28/5000 = 0.00186

    Tesla, 21000/0 = INFINITY!

    See, GM is a better buy!!!! Q.E.D. and checkmate!

    Your article is desperately uninformed, illogical garbage. Read your comments to find out why. SteveTG3's July 17, 2013, at 9:58 PM comment in particular sums it up nicely.

  • Report this Comment On July 18, 2013, at 3:37 AM, jeffhre wrote:

    Let me explain the infrastructure for you. Not in ten years, tonight. Drive car into driveway or garage, plug in. Go to car in morning with full tank, never seeing gas station. No snow, no rain, no hot sun, just drive. With another full tank tomorrow when you wake up.

    No charger at home. Drive to work, plug in. Leave work with a full tank. Repeat tomorrow.

  • Report this Comment On July 18, 2013, at 9:23 AM, ToddRLockwood wrote:

    I always have to scratch my head when articles (like this one) use a photo of a Tesla Model S Prototype instead of a photo of the actual production vehicle. Makes you wonder how well they actually know the product, and hence, the company.

  • Report this Comment On July 18, 2013, at 10:50 AM, weaponz wrote:

    @Norselord I agree the problem is that most Americans do not understand basic physics and your a perfect example of an american with poor understanding of physics.

    First of all, units of energy are kwh, not kw (which are units of power)

    Second of all, the problem with gasoline cars is that they use tiny engines to generate energy which is highly inefficient. So while gasoline has more energy density, most of the energy is completely wasted. Motors on the other hand can reach over 90% efficiency. End of the day, EVs are still more efficient then gasoline cars, even if you took oil, burned it into a power plant and used it in an EV, it would be more efficient then a gasoline car with a tiny engine. End of the day it is not about the amount of energy used but what the energy is used for, an electric motor uses most of the energy for motion, and car engine uses most of the energy for everything other then motion.

    And third of all, our grid is only 37% coal and becoming more efficient every year. Due to stricter regulations even coal plants are emitting less emission every year. Though coal disparity depends on state. My state uses only 5% coal. That said, in the US even if your state used 100% coal, it would still emit less then a gasoline car.

    The EPA does emissions per mile calculations on every car that is available publicly via the fuel economy website. Both the pollution of gasoline burning and offsite electricity generation is calculated. End of the day, gasoline cars pollute more per mile then electric cars, check yourself.

  • Report this Comment On July 19, 2013, at 1:22 AM, StanO6 wrote:

    #Norselord, you are mistaken. The ICE is a terrible way to consume gasoline. Most of the energy content of the gasoline is wasted. The really funny thing about this (no, not that you do not understand the physics you claim to) is that a French man named Carnot knew this years before the ICE was invented!

  • Report this Comment On July 19, 2013, at 5:44 PM, nin4086 wrote:

    Interesting analysis but wrong. I agree Tesla stock is overpriced. It is on the "peak of inflated expectations" stage [Netflix was there as well, so that does not mean Tesla is bad company] and will at some time hit the "trough of disillusionment". I will buy their stock when that happens [like I bought Netflix]. Some counterpoints to this article (and response to an efficiency calculation):

    Infrastructure: It can be built over time. Not a showstopper. There is no need to drive across the country in an EV.

    Valuation model: You failed to account for growth. Tesla has potential to grow, more than other cars you compared with. Also, it is a premium car so you should have compared with BMW or Mercedes not GM etc.

    Battery: This is the real risk factor for Tesla. How long will the battery last? How quickly will it lose capacity?

    Competition: Don't expect BMW, Lexus, Mercedes, Audi to sit idle if Tesla actually grows. The reason they are not jumping in as fast is Tesla is because of the risk involved. They are good and profitable businesses and have a lot to lose if EVs fail. [In the same way as Netflix's growth is slowed by Amazon, Comcast, Apple, youtube etc]

    Nothing to lose: Tesla has nothing else and hence nothing to lose (except shareholder capital), so it will take huge risks. The fact that they had to give residual value guarantee to sell more cars show how desperate they are.

    Calculation: EPA's mpg equivalent formula is misleading. It does not account for the efficiency of electricity generation and transmission. The real number is not very far from efficiency of ICE.

  • Report this Comment On July 19, 2013, at 5:45 PM, MB79 wrote:

    For every statistic that you can create to look a company bad, another one can be created to make it look good. Like your ratio of market cap/number of cars makes no sense at all!

    If you ask me, Tesla seems to be more of a tech company that makes hardware. That hardware happens to be car. Take a look at the companies business model and it doesn't seem anywhere close to any of the auto giants.

    They may never produce a million cars and that is just fine. Ferrari doesn't produce a million cars and still gets by just fine. Michael Porter says companies should always strive for profits (not REVENUES) by designing businesses that bring maximum value to a targeted set of customers. For example Apple targets consumer market, they have never tried to actively sell into business segment. They don't confuse themselves about who they are. Tesla does that too. I would be sad if Tesla becomes a Ford or a GM in the future that tries to be something for everyone. As long as it gets an ever expanding set of customers around the world who are willing to give 25% margin for its cars, it should be compared with other companies that make 25% margin!

    So if tesla only targets .001% of richest people in the world and they sell only 500,000 cars at 25% margin of the 85K car. They will have $10.5B in PROFITS over lifetime. That is plenty i think!

    Regards

    Mayank

  • Report this Comment On July 19, 2013, at 6:41 PM, kabrink wrote:

    There are many commentors dispelling the "infrastructure problem" by saying "just plug it in at home". Just fyi, that doesn't work for many people. If you live in an apartment or condo you simply can't do that right now.

  • Report this Comment On July 19, 2013, at 8:01 PM, MichaelHamilton wrote:

    I agree that the article is flawed, however I have not the slightest doubt that Tesla is overvalued by approx. 1000%. the current valuation is just plain mad, and driven by what? A single profitable quarter? It is expected to dip back down into losses for the current quarter. The car prices are only competitive in the higher end of the marketplace and there is plenty of competition from the big boys. Tesla will continue to be just a relatively small niche business and as such shouldn't be valued as if it was a dominant market player. Are electric cars the future? Yes. For sure. Is the current technology expensive? Yes. We will still have to wait a few years for electric cars to become the mainstream, perhaps 10 years for those investors who are willing to wait so long. And even after 10 years Tesla is still likely to occupy a small part of the market.

  • Report this Comment On July 19, 2013, at 9:37 PM, SteveTG3 wrote:

    Kabrink, I myself am one of the say 20% of the population that live in an apartment or condo without my own private garage. In the next few weeks I'm moving to a new place with a garage so I can keep my new CPO Roadster there. True story.

    Michael. it's debatable how probable Tesla it is Tesla will get to Gen III and 300K+ cars per year. If they succeed today's price is a fair one. I'd expect $12 eps on 300K cars roughly 2019, thus a $300 share price based on 25 pe for what would be a growing business. I think it's 75% they succeed, 25% they struggle with Gen III but S/X still going strong. I take a waited average and see the shares worth $250 in 2019. doubling one's money in 6 years is beating market averages. I think my % likelihood of success is conservative, and I've included $0 for licensing Tesla's tech to other automakers, grid storage, or battery swap revenue.

    To say Tesla should only be worth 10% of it's current market cap suggests you think it is 90% probable they implode, 10% probable they hit the mark on Gen III.

  • Report this Comment On July 19, 2013, at 9:39 PM, SteveTG3 wrote:

    (forgot to mention in 25% case they struggle with Gen III but still doing well with S/X I see the company valued at $100 per share in 2019).

  • Report this Comment On July 20, 2013, at 12:17 PM, TMFTomGardner wrote:

    One of the beauties of The Motley Fool is that we invite competing opinions. It's a giant colorful tent, with thousands of tables -- called public companies -- at which discussion and debate prosper every day.

    My team in Stock Advisor -- with our chief investment officer, Andy Cross, leading the charge -- recommended Tesla in November 2012. The stock has risen 275% for us since then. As we know, the business is now valued at nearly $14 billion. I expect the stock price to be extremely volatile over the next decade.

    I disagree with Sean. But the first thing I'll acknowledge is that he has a 99.96 rating in CAPS, where more than 75,000 investors compete. This means simply that his investment results there are better than 99.96% of investors there. And those are statistically significant numbers. I'm not saying CAPS is utterly flawless (no scoring system is), but there is no better system on the planet for tracking a broad set of investors. So, to the poster who said that Sean has no qualifications. . I say. . name for me a business/investment writer outside of The Fool who has better public qualifications, with every recommendation available back in time, all tracked against 75,000 other investors.

    Now, the great thing about investing is that even if you're a master, you'll be wrong 1-4 times out of every 10 investments. Other times, you'll be right, but for the wrong reasons! Investing is such a great game, such a great learning adventure.

    I believe that if Tesla proves to be overvalued, and ends up delivering subpar results over the next 10 years, Sean will have been right. . but. . for the wrong reasons. The arguments made here are not supported by the evidence at Tesla and, more importantly, by the evidence at other disruptive innovators in the world's history.

    I'll take just one example.

    Sean calls out Elon Musk, suggesting that he cannot be trusted, that he is Mr. Broken Promises. Why? Because he pushed back production. Hm. Didn't Steve Jobs push back production. Wasn't Apple hampered by delays and antennagate, and you name it. Innovation doesn't dance to the metronome. Getting things right for the very long term is much more important to the true innovator than is "showing up on time." (I highly recommend reading the work of William James 100+ years ago on how he located geniuses while teaching at Harvard. One key factor? They never showed up on time, if at all.)

    The other argument here that feels very weak to me are all these valuation comparisons to plodding, slow, debt-ridden automakers. I remember when Amazon's valuation was compared to that of Borders. I also remember an executive at Barnes & Noble dismissing Amazon as "generating less sales across its entire business than we do at a single store in New York City." How you like it now? Taking companies that don't show prospects for sustained, superior growth rates and presenting them as the best comparison to ones that do. . . is a bad idea. Shorting stocks based on this approach could lead to disaster. This valuation approach would have, in 1992, had you laughing wildly at Whole Foods as you pushed your cart through Safeway, while sipping your cup of Sanka and mocking Starbucks. You'd have paid $200 per transaction with your Dean Witter broker to buy your Safeway shares, and called in a short of Charles Schwab while you were at it. (Reminds me of the Saturday Night Live skit, Bad Idea Jeans.)

    Still, though, Sean, you could be right for the wrong reasons. And your rightness also might depend on your timeframe. Could Tesla stock get cut in half from here? Of course it could. Amazon is a $140 billion business now (Borders isn't a business). But on Amazon's path, their stock once fell 90% (circa 2001). Same thing for Whole Foods (circa 2008/9). And Starbucks got leveled 70%+. Great companies with great leaders can have greatly overvalued stocks that get greatly hammered then greatly turn around yielding even greater long term results. It happens.

    I highly recommend, though, reading and reading and reading what Musk is up to. Here and elsewhere. This is a truly unique person we have in our midst. He is taking on giants, trying to change the world forever. I consider myself incredibly lucky to live in a country where that can all play out, where disruptions are welcome, and the marketplace is open for customers and stockowners to buy and sell what they believe in.

    Fool on!

    Tom Gardner

  • Report this Comment On July 20, 2013, at 5:00 PM, SteveTG3 wrote:

    Tom, I really appreciate your response here. The stats you cite support your great confidence in Sean's ability. Yet you were willing to acknowledge the arguments made in the article are not supported by evidence. Your willingness to do this is rare and greatly appreciated (actually reminds me of the sort of value guided moves Musk makes, and we'd all love to see become the norm one day).

    Tom, as you are a founder and the CEO of Motley Fool, I would like to share an observation and a suggestion.

    So much of our media has become infotainment... I'm skeptical that the info part of the word is applicable. In your space of financial and investing coverage, we now also have Seeking Alpha. Seeking Alpha is basically an incubator for anonymous crowd sourced "articles" not supported by evidence. I can imagine there are pressures at Motley Fool from the slide into entertainment and "Wild West" gibberish of Seeking Alpha. A hard truth observation: Sean's article above is not alone among Motley Fool current content I find of dubious value, or frankly, worse.

    Please consider re-affirming your niche as a source of information covered in depth. It seems all the other content providers are leaving this wide open for you!

    I suggest you present three types of information:

    Your blog system to offer free reign as Seeking Alpha does subscriber pieces that can be lengthy, but UNLIKE Seeking Alpha, you continue to clearly mark it as blogs, and not fact checked (I would actually say more clearly would be great... I can describe if you are actually reading this).

    Second type of information, the bread and butter- well researched, fact checked articles investors can really benefit from. I used to look for these. Wow, is there ever a vacuum for these. Having followed Tesla the past year, my opinion of even the Wall Street Journal and the NY Times objectivity have taken huge hits.

    Third type of information, not entertainment, but light-hearted commentary. You could call these editorials, or musings from long time investing vets. In this case, the impetus for a editorial is that, yes, Tesla's meteoric rise is stunning and a bit of a spectator sport. CNBC and the like have fun with spectator sport part of it, so can you. The difference... that's pretty much all CNBC does. You can have fun and set aside with a label for people to see it's just goofing around, UNLIKE CNBC et al. Sean could have written a fun article that straight away indicated he had not researched the company in depth (could be a big winner, or a big dud), and gone on to have some fun with the fact of "Hey, so many of us are wondering is this Tesla for real or B.S.?" Is it a "cult stock", is it B.S. to try to write off a stock and undermine the credibility of longs points by calling it a "cult stock"? wow, have we ever seen this before where things fall apart, and where we didn't realize it but we were watching a huge inflection point, a behemoth starting to crawl.

    So Tom, you could than have the niche of credible well researched articles all to yourself, an outlet for non-staff blogs responsibly presented, and an outlet, for commentary about the fun of the surprises and wonder of today's "hot topic." Please give it some thought.

    Thanks,

    Steve

  • Report this Comment On July 20, 2013, at 8:47 PM, TMFTomGardner wrote:

    Steve,

    I certainly am still reading. You make excellent points. As I'm sure you know, the highest quality research that is done at The Motley Fool exists in our membership business. That ranges from $49/year all the way up.

    I love what we've done with our business this past year, dramatically reaching more investors around the world, as we've grown out our blog network. I think contributors like Sean are immensely valuable. We are fortunate to be able to connect so many brilliant investors together. That isn't a marketing pitch. I truly believe it.

    The process of scaling our programming to reach more investors means taking some risks on the free side. I think these risks are being taken in different ways by different organizations. The truth, obviously, is that the giant portals are the profit centers. That is likely to change over time. But not overnight.

    What this means for us is that we qualify all of our writers, then give them increasing amounts of leeway as they develop. Our free side is like an upgraded Tumblr. We have quality standards. They are not the same standards as we hold in our membership services, where we are making formal recommendations and often allocating capital.

    The challenge we face is how to scale to 25 million readers each month while steadily moving up our standards on the free side. I believe in continual progress here, rather than a dramatic action (which could either diminish quality or shutdown access to investors. . at the extremes).

    I don't see any investment advisor/publisher in the world doing the sort of quality and volume work that we are on the free side. But, as you say, the competition might be pretty lean. We can do better, I'm certain of that. And I've forwarded your comment to our programming team. Your Foolish voice has been heard. Now let's see how well we do.

    Tom Gardner

  • Report this Comment On July 21, 2013, at 2:21 AM, JungleGent wrote:

    I've gotta say that the comments are much more interesting than the article. I'm especially impressed by the very thoughtful points made by Tom and Steve.

  • Report this Comment On July 21, 2013, at 5:36 PM, SteveTG3 wrote:

    Thanks Tom, your reading and passing on to programming that post is appreciated.

    I did a little research. Sure enough, you do have very high aims for the work you do (found an interview you did on youtube with Professor Freeman of Darden School of Business).

    What's so encouraging is there's no reason to worry about the highest of aims...

    Vanguard Group is the largest U.S. fund company (Wall Street Journal, 8/6/12).

    As of December 2011, Consumer Reports had 3.3 million digital subscribers, six times as many as the Wall Street Journal, the leader among newspapers (NY Times 12/10/11).

    You look at the goals of these two companies, and don't they point to a wide open future for your own? Rigorous, unbiased guidance in the realm of finance that benefits those inside and outside the organization. Those companies achieved success because the value they create is so compelling, not because they've been masters of marketing.

    One little concrete point about fool.com's strategy with free content as I understood your description. No, I wasn't aware the highest quality research the Fool does is in the paid membership area. Honestly, I assume what's offered to tempt me with a free sampling is the equal to or better to anything I'll get once I pay (much like I wouldn't expect to see a more appealing hired employee than what is presented to me in an interview as a perspective employee). I've not considered taking a paid subscription (until now).

    Steve

  • Report this Comment On July 21, 2013, at 10:42 PM, TMFTomGardner wrote:

    Steve,

    I might describe it more as free seating at an outdoor concert versus paid seating (with multiple tiers) of an arena concert. In the outdoor version, you're largely responsible for your experience (blanket, thermos, bug spray). In the indoor version, you'll get seated with a program.

    Our goal is to drive the quality of both experiences higher. The free side requires lowering costs toward zero. The paid side requires driving results dramatically higher than the price tag. Our Stock Advisor services retails for $49/year and has thumped the market for 11 years.

    One way to develop our business would have been to Tesla-ify finance. . starting at the super high-end, and working our way down. We're trying to serve every Fool on their own terms. While it's working, it isn't perfect. The comments here are very helpful. Thank you.

    Tom

  • Report this Comment On July 23, 2013, at 2:45 PM, SteveTG3 wrote:

    Tom,

    Ah, I can get your concert analogy and the solid business model that it represents, great image.

    Had I accessed these articles through Fool.com, you may have positioned the free content in it's intended context, thus delivering the message you've had to spell out for me here. I sure would be unwise to complain about the need to bring my own bug spray and blanket if I'm getting to watch a free concert. As it happens, I've never really spent time looking at Fool.com. Indeed, you may already clearly and prominently map out the landscape of your concert.

    I access your free content because it shows up in the news section when I look at a Yahoo Finance quote on TSLA. Entering through that doorway, I've regarded your free content as a service provider looking to be hired for a job presenting me with a portfolio sampling his work. From that perspective, fool.com the quality of Fool.com didn't distinguish itself from the content of CNBC, Bloomberg News, CNNMoney. All places I only visit with a supersize can of bug spray :)

    I'll just add that while the Fool.com free content doesn't make its home the recklessness of Seeking Alpha, the skepticism that SA's website has developed in me about what gets "published" and it's use as a vehicle for ulterior motives has colored how I look at all free content.

    I suspect others accessing these Fool.com articles through Yahoo and the like may have similar impressions of your website as the ones I developed.

    Steve

  • Report this Comment On July 28, 2013, at 11:33 AM, penchy1 wrote:

    Steve

    Excellent comments about the Fool. Another source of content are the Fool boards. There are many threads which are self-policing for correct content with many experts responding. I hope you take advantage of those.

    Mark

  • Report this Comment On October 18, 2013, at 3:59 AM, jeffhre wrote:

    Sean,

    I'd like to say thank you to everyone who helped to create the great short squeeze of 2013. It really helped to not only build up Tesla's credibility in the equity markets and war chest, but also to pay off the DOE loans early and make Tesla stronger and more competitive.

    Thank you from Jeffhre, a Motley Fool Member since 2003 and follower of Tesla Motors progress since 2006.

    I'm curious, what was the value of DEC per minicomputer in the 80's. Or the value of Kodak per roll of film in the 90's.

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