Tesla Motors (NASDAQ: TSLA ) stock fell about 6% this week, faring worse that the S&P 500's decline of about 2%. While there were news-worthy items related to Tesla during the week, the most likely cause of the decline in Tesla's shares is simply that it is a suitable time for a breather after a gain that topped 40% in the past two months, on top of a massive 300% gain in in 2013.
Let's look at the Tesla news that surfaced during the week as well as the stock's valuation, which is raising eyebrows.
Tesla gets banned in New Jersey
The most important Tesla news this week came on Tuesday, when the company blogged about New Jersey Gov. Chris Christie's sudden decision to support attempts to ban Tesla's direct sales model in the state.
Later that day Tesla was, indeed, banned from selling cars in the New Jersey. The state approved a regulation that would require all new-car dealers to obtain franchise agreements in order to receive state sales licenses. The Christie administration had previously agreed to delay the proposal and, instead, grant Tesla a fair legislative process to defend its reasoning for a direct sales model in the state. But Christie changed his mind, gave Tesla less than 24 hours' notice, and here we are.
While Tesla does have a broader agenda of defending innovation and consumer choice by pushing the direct sales model over the franchise model, the argument can be simplified even further: Tesla says that selling its eclectic vehicles is (understandably) an education-intensive process. Having its own stores and Tesla retail employees, therefore, allows the company to educate customers, potential buyers, and the rest of the world about electric cars.
Is the sell-off merited?
That depends on your view of the trajectory of electric cars, going forward. But investors looking to buy Tesla at a reasonable price may end up never owning the stock; disruptive companies like Tesla are known to consistently trade at wild valuations as the market prices in a bullish outlook.
To add perspective of just how expensive Tesla stock is, the company trades at a market capitalization of $28.5 billion, half of General Motors' market valuation. This is telling, considering that Tesla only sold about 22,500 vehicles in 2013 and General Motors sold 9.7 million vehicles. To be fair, however, Tesla projects that the company can sell 500,000 annually by 2020. Further, its gross profit margins are putting many automakers to shame.
Wrapping up the week with a fun video, here is a fan-made Tesla Model S commercial making waves.
Excited fans like these college graduates who shot this film play a big role in Tesla's word-of-mouth marketing as the company continues to spend zero dollars on advertising.
Going into next week, keep an eye out for a blog post from Tesla. Tesla CEO Elon Musk tweeted on Friday that he was working on a post this weekend to counteract arguments from journalists who are asserting that the Model S has negative impacts on the environment.
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