Could Tesla Motors, Inc. Stock Hit New Highs?

Tesla (NASDAQ: TSLA  ) stock closed at $182.84 yesterday. That's the second time in the last 10 days shares closed above $180. Those levels are meaningful because they're near the stock's all-time high of $194.50. Even more, the return to higher levels is impressive considering Tesla was trading at levels below $140 in the middle of the month. Up about 29% from those levels, could the stock soon reach new highs?

Model S. Source: Tesla's official Twitter feed.

Tesla's valuation dilemma
While I won't attempt to make any predictions of where the stock will go in the short term, a look at Tesla's valuation in relation to its prospects can help investors get a grasp of whether levels above $194.50 are possible.

By most metrics, Tesla is wildly overvalued. For instance, Tesla trades at 12 times sales. Comparatively, Ford and General Motors trade at 0.4 times sales. Or, here's another way to look at it. Tesla's market capitalization per car is nearly $1 million. General Motors'? About $5,300. The difference between Tesla's valuation and those of its U.S. peers is a chasm.

A forward-looking market
But you can't value a disruptive growth company like Tesla by looking backwards. The market is a forward-looking mechanism, and Tesla has an incredible future ahead of it. For 2014, Tesla vice president of China operations told Reuters that the company is aiming to double its 2013 deliveries of 22,450 in 2014. Longer term, Tesla plans to launch a more affordable fully electric car that is about half the price of its Model S. Putting the icing on the cake, Tesla is already paving the way for future growth by rapidly expanding internationally.

With Tesla considering building the world's largest lithium-ion factory, and even pondering the possibility of an auto factory in China, forecasted levels of 45,000 deliveries per year for 2014 still doesn't come close to capturing Tesla's potential over the long haul. Considering Tesla's impressive execution so far, it's possible Tesla could be selling hundreds of thousands of units per year when its more affordable car hits the market.

But even hundreds of thousands of units per year is small. General Motors alone sold 9.7 million vehicles in 2013. Total auto deliveries in 2013 were 82.8 million. If Tesla carves out a meaningful niche for itself by the end of the decade and commands just 0.5% market share, it could be delivering 500,000 thousand vehicles annually. Indeed, this is Musk's aspiration.

"Such rapid growth would be unprecedented in the history of the automobile," Mark Rechtin recently wrote in Automotive News. Further, if Tesla does accomplish growth like this by 2020, the company's incredible execution will likely continue to command an impressive premium to sales. Investors may wonder, "If Tesla can get to 500,000 vehicles in such a short time, what's to stop it from getting to 2 million in the next five years?"

Undervalued, or not?
So this brings us back to our original question: Can Tesla rise past its all-time high of above $190? Definitely. A look at Tesla's small slice of the pie in relation to total global auto sales shows there is plenty of upside potential for the company.

While this doesn't necessarily imply that Tesla is undervalued, it does suggest that concluding the company is overvalued simply because historical valuation metrics look ludicrous may not be the best approach to looking at Tesla stock. Even more, when you marry Tesla's proven execution with its audacious goals, rating the stock at least a hold seems completely reasonable.

Tesla is not limited to $190.

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Read/Post Comments (8) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 31, 2014, at 11:16 AM, ffbj wrote:

    I think we need to stop comparing Tesla to Ford's or GM's production numbers. It is a luxury car company that produces a single model. So more valid and useful comparisons would be to luxury models of BMW and Mercedes, for instance, in a similar price range. Here Tesla outshone all other manufacturers

    in that category last year.

    Fairly priced stock.

  • Report this Comment On January 31, 2014, at 11:28 AM, wisdominvest wrote:

    It certainly could go (much) higher. In the short term when NHTSA announces that physical recalls are not necessary. Until then I'm very careful with TSLA. No need to take risks. Enough money can be made in a volatile market, and volatilaty is expected this year.

  • Report this Comment On January 31, 2014, at 11:30 AM, flipjuice wrote:

    you cannot compare tesla to any other car companies. First of all it's like comparing Sony's walkman to ipads. TSLA is different from other car companies. They have a different business model. They sell nothing but electric luxury (for now). Can't buy them at dealerships. They provide their own charging stations. Tony Starks owns the company. GM is an old ass company. Just like any other blue chip company. It's kicking a dead horse. You know exactly how it's gonna go.....yes I bought it when it was really cheap.

  • Report this Comment On January 31, 2014, at 12:14 PM, JulianCox wrote:

    Recent announcements in Munich and Amsterdam (Musk Straubel) hint strongly that they are clear of NHTSA recall threat and are in the final stages of negotiating the wording of the NHTSA press release to confirm. Firmware V6 announced as an imminent and major release - crucially it hands over to the driver responsibility for air-suspension ride height. This smacks of a negotiated settlement with the NHTSA to stop the risk of contact with road debris being an inherent feature of the car and instead a matter of driver preference in the same way as choosing to use the GPS navigation and accepting the risk of driver distraction.

  • Report this Comment On January 31, 2014, at 1:01 PM, IfjGusztav wrote:

    I think the question:

    If the full electric car market being big enough (because now is small) and the BMW AUDi FORD etc. get in (because the will do) then What will be the difference betwen different makers electric cars. Probably nothing. And the margin? Nothing.

    And the stock pricing will not be different from the others

    The electric car now only a funny thing. Of course i would like one:-)

  • Report this Comment On January 31, 2014, at 4:02 PM, wisdominvest wrote:

    Announcements in Germany or Europe in general have nothing to do with NHTSA review decision. I prefer to wait to jump in the stock. Why to be impatient ? Why to take the risk that the stock drops 20-30%. Just wait for the NHTSA to speak for having 100% certainty about the direction in which the stock moves.

  • Report this Comment On February 01, 2014, at 7:43 AM, RobertFaheyJr wrote:

    Potential positive catalysts:

    1. NHTSA all-clear: This is more likely with each passing day as the mini-rash of problems last year looks more and more like a red herring.

    2. Model X: It's entering vocabulary this year as production model bows. Company becomes a two-trick pony, with a third on the way.

    3. China rollout: Social media indicate strong response to pricing. Smog efforts and government incentives timed perfectly.

    4. Sales volume and profitability: As Tesla predicted, its legs are strengthening as it weans off mother's milk (selling tax credits). Detroit announcement shows volume is strong, while on the cost side, key raw materials become cheaper with time in Tesla's case. To boot, any company savvy enough to refine a car via an OTA patch (!) is surely refining itself for max efficiency at all times.

    6. Charging network fruition: Range anxiety slowly eroding with each milestone reached. Subconscious objection to electric vehicles will be much weaker when Model E hits the market.

    Potential negatives:

    1. NHTSA recall. It would cause a few months of pain at the very least.

    2. Battery shortage.

    ------------------------------

    I'm ignoring the ever-present sideshow of analyst upgrades/downgrades, and the notion of a giga-factory, which is both positive (bottleneck solved, proprietary tech to boot) and negative (cap ex). Also ignoring the spectre of fuel-cell vehicles. Toyota says it will unveil one next year. I say even if fuel cell gets a footing, it wouldn't mean electric is passe. If one ends up eclipsing the other, it wouldn't happen until well beyond our investment horizon, assuming we're in our 30s or 40s at least. Hybrids hit the streets in 1997 but hardly dominate the roads in 2014 despite warm reception.

  • Report this Comment On February 10, 2014, at 10:33 AM, blando3 wrote:

    Just hit $196 this morning!

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