Why Tesla Motors Is the Amazon of Autos

At first glance, it seems that Tesla Motors (NASDAQ: TSLA  ) and Amazon.com (NASDAQ: AMZN  ) have little, if anything, in common. However, from an investment perspective, the luxury electric-car maker and the world's largest online retailer couldn't be more alike. Let me explain.

Tesla investors and Amazon investors have a lot in common these days. As Tesla's ballooning valuation attests, the company's shareholders are willing to sacrifice near-term profits for future profitability -- much like stakeholders of Amazon's stock. In fact, Amazon has employed a similar strategy for years now. The e-commerce giant continues to burn through cash in order to invest in new growth initiatives such as Amazon Web Services or its business-to-business venture AmazonSupply.

Revolutionizing their respective industries
Since founding the company in 1995, Jeff Bezos has proven he isn't afraid to forgo quarter-to-quarter profit for long-term gains.An as example, Amazon doesn't currently make money on its Prime service. However, it does entice customers to spend more (and more frequently) by offering free two-day shipping on an unlimited number of deliveries for just $79 a year. 

While Amazon is considering increasing the price of Prime by $20 to $40 more per year, the service was never meant to be a revenue generator for the company. Instead, Amazon introduced Prime as a way to attract new customers to the website while creating value for existing customers. This strategy has so far paid off for the online retailer, as Amazon now counts tens of millions of paying subscribers to its Prime membership.

For Amazon, the lack of shipping options was one of the early setbacks for online shopping. With its Prime offering, Amazon laid the groundwork for speedier and more affordable delivery. As the Amazon of autos, Tesla is achieving a similar feat today in the niche electric-car market with its Supercharging network. Until now, one of the major setbacks for widespread electric-vehicle adoption was the lack of charging infrastructure. However, Tesla is changing that reality one Supercharger station at a time.

Source: Tesla Motors.

The California-based automaker is investing loads of cash into the buildout of a worldwide charger network that lets Tesla drivers make long-distance road trips without ever needing to stop at a gas station. Tesla recently connected its East Coast and West Coast Superchargers. This means that Model S drivers can now drive across the U.S. using only Superchargers. Similar to the way in which Amazon Prime helps convert more shoppers into Amazon shoppers, Tesla's Supercharging network aims to convert more drivers into Tesla drivers through the value-added service.

Momentum stocks built for growth
On the surface, both of these stocks look wildly overpriced. Amazon trades close to $359 a share, with a price-to-earnings multiple north of 600. However, that's not to say that Amazon isn't pulling in sufficient cash. Indeed, it generated net sales of $25.59 billion in its fourth quarter of fiscal 2013. The kicker is, Amazon reinvests much of its quarterly earnings back into the company.

Tesla is following a similar trajectory today, as the EV maker pushes into overseas markets, ramps up production, and continues to open new Supercharger stations and retail showrooms in the U.S. and abroad. It trades at about $252 a share today, which is more than 68 times next year's projected earnings. For comparison, Ford trades at just seven times forward earnings today at roughly $15 per share.

The difference is that investors in both Tesla and Amazon are willing to pay up now for future profitability, even if their respective stocks take years to grow into their current valuation. Nevertheless, at today's levels, both of these stocks are priced for perfection. But don't worry if you missed out on the Tesla and Amazon rallies. The Motley Fool has an even better way to unlock superior growth.

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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 February 27, 2014, at 6:41 AM, anfitrion wrote:

    Tesla’s top line is driving on the fast lane right now, but they will struggle to maintain Amazon’s rate of speed. Amazon has a built-in delivery system. Sure: it needed to build warehouses, but that is big business boilerplate. UPS and FedEx were already well-established and handled the rest. Tesla, by contrast, is attempting to bypass auto dealerships to sell straight to customers and faces an even tougher hill climb: encouraging a nation to build out an entire network of charging stations. Good luck with that.

    Amazon is sensitive to giving customers good prices, which helped maintain revenue growth during good times and bad. Tesla, however, is anything but price sensitive. You can buy books for a buck on Amazon. Tesla? Do I hear six-figures for a roadster? Granted, those cars are beautiful and it’s a different approach to the market, but peddling high-priced goods is always a bit more tenuous. Tesla is, at best, a touch more susceptible to a lurch in the business cycle.

    If there is one thing that makes Tesla the Amazon of autos is that both use dodgy accounting metrics while peers stick with GAAP: http://equity-research.com/tesla-transitions-to-non-gaap-ebb...

  • Report this Comment On February 27, 2014, at 8:15 PM, MichaelHamilton wrote:

    TSLA valuation is just plain mad. Better to take Jam today than Jam in 20 years.

  • Report this Comment On February 28, 2014, at 9:47 AM, FrankoJames wrote:

    MichaelHamilton; you missed the WFM point of the World Cup; the brandy wine is not currently for SALE in China. Thanks for the exhust and smoke Detroit. Musk has to find a better way to recycle those batteries. And yes; I wish that I would have been able to buy some shares of TSLA this past year.

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