The luxury car market is filled with pricey machines that can, in many cases, crank out insane amounts of horsepower. The Bugatti Veyron is perhaps the quintessential example when it comes to luxury sports cars, with its latest version capable delivering 1,200 horsepower and setting purchasers back in excess of $1.3 million.

When I think of luxury cars I also think of Tesla Motors (NASDAQ:TSLA), but perhaps not in the same sense as Bugatti, Lamborghini, and McLaren. Tesla is certainly pursuing a niche middle- to upper-income consumer who values a socially responsible lifestyle and simply wants a more than comparable all-electric vehicle.

The results thus far demonstrate that Tesla has delivered on that promise, with its entire 21,000-car output in 2013 spoken for well in advance of production. Tesla was also able to top its own production estimates in each of the past three quarters while turning in profits – albeit adjusted and enhanced with EV credits – over the past two quarters.

Part of this credit has to go to CEO Elon Musk for delivering on his promise to bring a mass-marketed electric vehicle to the public. The other half relates to the actual design of the vehicle which, I won't deny, looks pretty stunning.

Source: Tesla Motors Events, Flickr.

Tesla's $1 million car... sort of
Whether you realize it or not, Tesla just yesterday rolled a $1 million car off its assembly line. It's not a car with 1,000-plus horsepower, it won't jump from zero to 60 in less than three seconds, and it wasn't personally handmade by Musk himself. In fact, the manufacturer's suggested retail price on the vehicle is just $70,000, but Tesla investors are perfectly OK bidding that car higher in excess of $1 million!

Don't believe me? Let's have a look at my favorite price-per-car tabulation that I've been tracking for fourth straight months:


Market Cap

2012 Production


General Motors (NYSE:GM)

$48.7 billion

9.288 million


Ford (NYSE:F)

$66.2 billion

5.708 million


Toyota (NYSE:TM)

$198.6 billion

9.692 million


Honda Motor

$68.3 billion

3.137 million



$22.2 billion



Source: Individual company annual reports, Yahoo! Finance, author's calculations. *Projected 2013 production. Data as of 10/07/2013.

By all accounts, Tesla investors have gone straight past crazy, driven through Gary Busey-ville, and set up camp in Charlie Sheen-town. Despite forecasting the production of just 21,000 vehicles this year, Tesla investors are valuing its $70,000 Model S at more than $1 million per pop all while traditional car manufacturers like General Motors and Ford receive Wall Street valuations of roughly $5,200 and $11,600, respectively, per vehicle.

GM is still recovering from the damage its brand value took from the automaker's 2009 bankruptcy, but it's hard to understand Ford's low value per car given its recent string of fuel-efficient vehicle success thanks to EcoBoost engine technology. Even Toyota is more impressive than Tesla, producing more cars in one day than Tesla has produced since its inception in 2003!

What you don't have to worry about with Tesla
First off, let me begin by saying exactly what the Fool's disclosure statement is going to say below – that I am, indeed, a short-seller of Tesla Motors. There's no hiding the fact that I'm strongly against its current valuation. However, I'm also in agreement with certain factors that aren't a problem for Tesla.

For instance, last week's YouTube video of a Tesla Model S burning up on the side of the road isn't a concern. As Fool auto guru John Rosevear points out, concerns over new car technologies have prevailed for some time now, but Tesla's response and the actual circumstances surrounding the fire are no cause for concern. In addition, the Model S in August received the highest safety rating ever given out by the National Highway Traffic Safety Administration.

In addition, I also believe Tesla has clearly overcome some of the key hurdles associated with building an electric vehicle. I certainly believe there's a future in EVs and Tesla clearly has the upper hand on any other industry titan that may choose to enter the fray, giving it a clear competitive advantage for now.

Why you should be worried about Tesla, and why I'm short
But there are other variables here that make absolutely no sense and give me reason to hold steady in my short-sale stance for Tesla – if not add even more.

To begin with, look at the overall strength in the auto market – it's unsustainable. With auto sales expected to top 16 million units this year, which would mark a six-year high, just how much can we really expect the marketplace to further improve? Just before the dot-com bubble hit, annual auto sales reached 17.4 million units before tapering to approximately 16 million immediately prior to the recession. Automobiles are getting better gas mileage and lasting longer now, so there's little reason to believe we're going to surpass the 16 million-17 million unit sales mark anytime soon. Consider for a moment just how little Tesla is contributing to this figure with its 21,000 vehicles. That's just 0.1% of total car production this year and it's not as if Tesla can build the Model S any faster than it currently is, so there's no way for it to take advantage of this latest mini-boom in autos.

Another factor to consider is that long-term lending rates have been on the rise since May despite a recent small retreat. Low lending rates have been a major impetus behind this surge in vehicle sales, but I'd conjecture much more so for higher-priced vehicles than those with a lower price point. A small change in interest rates can greatly affect the monthly interest rate charge for luxury category vehicles like Tesla's Model S, making fuel-efficient options such as the Ford Fiesta or Toyota Prius a potentially smarter, less pocket-altering choice.

Don't forget about these worries, either
There are also multiple other factors that you've probably heard previously and I've certainly touched on before that deserve some rehashing.

Perhaps nothing stands out as a greater threat to Tesla than its own execution. I'm perfectly willing to admit that Tesla's met or beat its production guidance in the past three quarters, but prior to that it was one production target pushed down the road after another. In fact, the company's complementary SUV, known as the Model X, was pushed an entire year down the road from its previous production date. Musk is undoubtedly a revolutionary, but his ideas often take time to implement. This current valuation comes with the assumption that everything will run perfectly for the next five years when Tesla's history would indicate otherwise.

Source: Tesla Motors Events, Flickr.

Another concern would be the actual production expansion that is around the corner. Tesla's plans are to double Model S production next year while also introducing the Model X in its Fremont plant. All the while, Musk plans to look for opportunities to expand into Asia, Europe, and perhaps other parts of the U.S. with factories.It's a solid plan, but it's unlikely to be executed without hiccups.

Don't forget about Tesla's competition. While Tesla has the competitive advantage, it isn't going to have all EV sales to itself. BMW (OTC:BAMXF) may get little respect when it comes to electric vehicles, but it recently introduced the cheaper i3 and the luxury i8 to market with the intent of stealing Tesla's customer base. The i8 is more of an electric hybrid, but the i3 can run up to 100 miles on electric power or 190 miles if consumers purchase the optional range extender. This does still give Tesla the better range of the two, but the BMW will be more than $20,000 cheaper. Let's also not forget that other electric options do exist including the Nissan Leaf and GM's Chevy Spark.

Finally – yes, you're going to hear it again – where's the infrastructure? Sure, people with a house can plug their car into a garage outlet, but what are condo or apartment residents supposed to do? What about cross-country trips? Tesla's target audience, due to the car's $70,000 price tag and lack of current infrastructure, is actually a small group, which significantly narrows its profit potential.

I find it hard to fathom how Tesla could possibly head even higher from current levels when it still has so much left to prove to the markets. I for one am short and have been given no reasons to believe that Tesla deserves even half of this current valuation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.