Who's Really Driving Tesla Motors' Stock?

Tesla's share price is riding high on hope on hype

Feb 25, 2014 at 7:00PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.


Stocks were little changed today, as the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) fell 0.1% and 0.2%, respectively. While volatility in the S&P 500 was muted, Tesla Motors (NASDAQ:TSLA) took investors on another wild ride, as the stock surged 13% on a dot.com era-worthy analyst note from Morgan Stanley. Shares of Tesla are up more than sixfold over the past twelve months.

Let's step back in time only as far as last October, when Tesla Motors opined publicly that "the stock price that we have is more than we have any right to deserve." On that day, the stock closed at $173.15. Fast forward four months and the stock is now 43% higher, at $248.

Today's price pop is the result of an extremely bullish note from Morgan Stanley, in which analyst Adam Jonas more than doubled his stock price target to $320, from $153. The new forecast is based on a 15-year outlook. If you feel like betting on that forecast, ask yourself: What is the degree of confidence anyone can have regarding the size and profitability of Tesla Motors in 15 years' time?

Make no mistake about it: Jonas' assumptions are very aggressive. Even his bearish scenario -- which values the shares at just $100 -- has Tesla growing its auto production roughly tenfold to 220,000 vehicles by 2020 (from 22,400 last year). The base case scenario behind his $320 price target has Tesla manufacturing 370,000 vehicles per year by 2020.

I have written before of my admiration for Tesla Motors and its CEO Elon Musk. What they have already accomplished is nothing short of remarkable and there is good reason to be excited about what they may yet accomplish. However, the stock must really be analyzed as a separate beast -- one that is now being driven by momentum "investors" and/or starry-eyed growth investors.

I have some sympathy for the second constituency; to quote Economics Nobel laureate Daniel Kahneman: "The combination of optimism and overconfidence is one of the main forces that keep capitalism alive." However, if you're going to be a "public market venture capitalist," you need to be prepared for the possibility -- perhaps even the likelihood -- of a permanent and significant loss of capital if the rosier-than-rosy scenario that is embedded in Tesla Motors' stock price on doesn't come to pass. By my (sober) reckoning, that price is now divorced from even an optimistic outlook for the company's fundamentals.

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Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. The Motley Fool recommends and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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