Why Tesla Motors Inc.'s Earnings Won't Matter One Bit On May 7

Tesla Motors Inc.  (NASDAQ: TSLA  )  will be reporting earnings on May 7, but if you ask this Fool, it will not make much of a difference to the outcome of the stock. And the reason is simple: When your stock is at $200 a share and you miss or surprise by a penny here or there, it makes no difference. When your stock has a market cap of $25 billion, and you beat or miss revenue expectations by $50 million here or there, it makes absolutely no difference. 

There are no known financial metrics that I am aware of that will make any difference when Tesla reports next week that can justify its current valuation.

What will make a difference? Appetite for speculation and nothing else. If the market decides to play the greater fool theory once more, then Tesla's stock will go up. If the market decides to come to grip with reality, then chances are that the stock will go down. And to tell you the truth, I can't even begin to guess what this market will do. It's one thing making an educated guess based on comparative fundamentals, and it's another trying to guess what the market will do when a stock is this richly valued.

While Tesla is by far the premium electric-car maker, it is not the only one. And as the electric-car segment heats up, Tesla will feel the temperature rise as time goes by. The electric-vehicle sector has become more mainstream due to massive investment over the past several years -- more and more car manufacturers are either planing on making, or are already making, electric vehicles.

As a result, investors might want to rethink the multiples they are paying for Tesla, given today's current valuation.

The problem I have is not with Tesla the company, but with Tesla the stock. And the problem is that it is ahead of itself -- the stock's price is way ahead of the fundamentals. 

For comparison, consider that Daimler AG (NASDAQOTH: DDAIF  ) recorded a record profit of 8.7 billion euros ($12 billion), and sold a total of 2.35 million vehicles in 2013 (a new record), with record revenue of 118 billion euros ($163 billion). The company trades at a P/E of 11 and has a market cap of about $100 billion.

Tesla, on the other hand, has a market cap of $26 billion (and that's after its recent tumble), has no trailing multiple (because it does not have profits on a trailing-12-month basis) and a forward 12-month P/E of about 60. 

The following table depicts analyst estimates for Tesla:


Source: Yahoo Finance

Yes, the company is growing fast, but please note that Tesla is predicted to post $3.65 billion in revenue for 2014 and $5.26 billion in 2015.

To put it in perspective, Daimler recorded $163 billion in sales with $12 billion in profits and is worth about $100 billion, while Tesla will probably post $3.65 billion in sales for all of 2014, with very low profits, and currently is worth about $25 billion. Daimler recorded 44 times the revenue of Tesla, and yet is only  worth four times more. 

Let me put that in another way: Shareholders who own Tesla are paying about $6.80 per dollar in Tesla sales, but Daimler shareholders are only paying $0.61 for each dollar in Daimler sales. Tesla has so much baked in the cake that current shareholders are fighting an uphill battle in the search for capital gains. And I think it's a battle they can't win.

And the reason why I think they can't win is because even as the company will be growing and producing profits over the years, the stock will probably be going nowhere. In other words, a lot of the future capital gains to be had by current shareholders are already baked into the stock. With the exception of short-term traders, I doubt long-term holders of the stock will make money at today's valuations.

The bottom line is that at current valuations, investors will probably be very hard pressed to make a decent return over the long term. And if for some reason the market changes its mind on what it wants to pay for Tesla, then investors might lose a lot more than they bargained for. On an apples to apples basis, as compared to companies like Daimler for example, Tesla'a stock can go down much more than most people imagine.

So if you are a Tesla shareholder, disregard the earnings report, because it will not make one bit of a difference as far as the long-term valuation of the company. At current valuations, Tesla seems to be more appropriate for short-term traders and swings traders than anything else.

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Read/Post Comments (9) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On April 29, 2014, at 9:03 PM, ckgod wrote:

    What investors are looking for is just confirmation that Tesla is on it's way to become what everyone is paying the high price for, that is to be the dominate EV company of the next decade. The stock price will suffer if people see a hiccup or the stock price will do well if people see that it is achieving everything it says will or more. I'm only talking about investors of course. Traders/manipulators can do whatever the want.

  • Report this Comment On April 29, 2014, at 9:54 PM, Jackl1956 wrote:

    So, you would compare an infant to an aged old man?

  • Report this Comment On April 29, 2014, at 11:54 PM, Johnny04 wrote:

    Really? Only $6.80 per dollar in Tesla sales? I thought it would be over $10 by now. Guess still room to buy :-)

  • Report this Comment On April 30, 2014, at 12:27 AM, lepera347 wrote:

    Given Tesla's categorization as a momentum name, as well as the volatility of those names in the past few weeks, I'd imagine their earnings would likely send them either flying or sinking. Such has been the case with their previous two earnings reports, when their market cap was similar. However, I do agree that EPS and revenue will not matter nearly as much as forward guidance was well as the progression of China sales.

  • Report this Comment On April 30, 2014, at 6:47 AM, GKesarios wrote:

    @, Jackl1956

    I am not sure that the old man thing is an investment criteria :-)))

  • Report this Comment On April 30, 2014, at 10:02 AM, RedHorse01 wrote:

    Funny, I've heard these arguments repeatedly since Tesla was at $80. Either way, a bubble has popped and I don't mean Tesla. I'm referring to the monopoly held by by the oil cartels and the so called Big 3. Tesla is ushering in a new era of automobile and it's about time. You can play with your shorts if you like...I am long all the way.

  • Report this Comment On April 30, 2014, at 1:45 PM, holidayday wrote:

    Good, but limited, article that just says "I don't know, and you don't know either."

    What longs know is that comparisons to current car companies is a stupid game. Either written to generate page views or written by those who really have not done the research on Tesla.

    Tesla's strength is in their technology. Other car companies are banking on limited electric vehicles, as I have seen NO other car companies that have comparable range and comparable charging speeds in their current or future plans. Tesla has cars, but it also has battery technology. Supporting electric grid fluctuations with battery technology is the next step in energy grid iterations. Currently, power companies need to exactly balance generation with usage.

    Electric storage allows better usage of energy generation, especially solar and wind, which have fluctuations throughout the day/night.

    Sure, there are risks, mostly to the Giga-Factory and the lower priced Model E; but the hard part is done. Tesla has proven they can create excellent electric cars at a large scale. The next steps are to increase efficiency and lower costs, which can be done.

    I agree with your assessment that the stock is overpriced for what Tesla is TODAY, but a certain level of potential is built into that price. Full potential is not built into the price yet, because in 10 years, if Tesla has battery production in multiple Giga-Factories and automobile production in multiple countries, then what should the stock price be at that time? 5x, 10x, or 20x what it is now?

  • Report this Comment On April 30, 2014, at 4:27 PM, haid1 wrote:

    Your title seems constructed to sound negative. This is a good example of click bait.

  • Report this Comment On May 01, 2014, at 4:30 PM, damilkman wrote:

    I am shocked how FOOLS have forgotten the rules of previous bubbles. The young Turks of the GREEN bubble sound just like those who pumped the INTERNET stocks. The language on these boards are identical. Not saying TESLA will not make it. It is just that 95% of the cannot miss stocks that everyone is pumping in the GREEN segment are going to disappoint just as the INTERNET bubble had only a few winners.

    BLAH is positioned to make zillions because BLAH has this BLAH that is going to destroy their competition and be an impossible moat to overcome.

    Bubble speculators always count one hundred birds in the bush long before one bird is in the hand.

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