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Here’s what we’ve learned about Tesla Motors (NASDAQ: TSLA) since the pioneering electric car maker reported earnings earlier this week:
- Its revenues are growing rapidly. On a non-GAAP basis they rose 33% in the third quarter to reach $1.24 billion.
- It delivered more than 1100 vehicles during the quarter to buyers who have more than $100,000 to drop on the car. Cumulative car sales are now around 90,000.
- It is still losing a lot of money. The Palo Alto, Calif. company said its non-GAAP net loss totaled $75 million during the quarter.
Tesla reported both GAAP and non-GAAP numbers but by both measures it is growing its revenue and losing a lot of money. The fact that this 12-year-old company is deeply in the red should not, in itself, be a factor dissuading investors. Tesla, after all, is a much a high-tech company as it is a carmaker, and it certainly would not be the first tech startup to rack up massive losses as it invests in the business.
Big Questions About Tesla
But like a driver navigating through heavy fog, it’s hard for investors to see sufficiently into the company’s future to make an informed decision about whether this is a good investment.
Yes, there is a growing demand for electric cars, but will that demand grow fast enough to disrupt the gas guzzling models that continue to dominate the roads today? And if electric car sales take off, will Tesla remain a market leader? Yes, prices for Tesla’s newer models are coming down … but can they come down fast enough to interest mass market consumers? Yes, the company’s large losses reflect its aggressive investment in a product that could transform our lives. But does the end justify the means?
The truth is that Tesla’s future is uncertain and there is no good way of knowing whether Tesla stock – which at more than $231 per share has increased more than 10-fold since its 2010 IPO – is overpriced or a bargain. This all depends on how the company matures, how the competition evolves and how consumers react. The future is always a little uncertain for any business but for a company making a type of car that has a long way to go before it can hope to dominate the roads, the questions are particularly significant.
What’s Your Vision of Electric Cars?
The company seems to understand this. The third-quarter Tesla earnings release came complete with product photos and lofty language about the environmental benefits of electric cars and appeared a bit like an invitation to believe in its vision.
Some investors may choose to do the same. If you believe that electric cars are poised to take off in the not-too-distant future then it’s worth seriously considering whether Tesla is the most promising player in the space. Maybe this sort of investment will pay off.
But it’s important to recognize that investing in Tesla today is more than anything a leap of faith. Tesla’s stock is already pretty pricey so it’s not possible to get a bargain on this stock. With a market capitalization of $30 billion, Tesla today is worth approximately half of Ford Motor Co. (NYSE: F). It will have to sell a whole lot of cars to justify that value.
Tesla, Apple and Google are creating this
When people think of Tesla, what immediately comes to mind is the world’s first electric car. It’s an astounding achievement. But what few people realize is that Tesla’s next technological wonder could easily put it to shame. Morgan Stanley says this breakthrough could save the American economy $1.3 trillion each year. And Tesla’s not the only one racing to get it out the door. Apple and Google are working on their own versions too. Get the whole story right here.