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Late last year, I argued that Tesla’s results raised many questions about future performance and that Tesla’s stock price could be inflated. Last week, the maker of luxury electric cars reported fourth-quarter and full-year results that included a lot of good news – car shipments and revenues growing, as well as reason for continued concern – some pretty staggering losses.
More important, to patient investors who really want reason to believe in this company’s stock, Tesla Motors (NASDAQ: TSLA) continues to confuse as it achieves positive net cash flow at the same time it reports losses that are significantly weaker than consensus estimates, and offers a somewhat vague forecast for non-GAAP profitability.
Tesla Stock: A Brief Rally
Tesla’s stock initially rallied as high as $158 after the company reported fourth-quarter results last week, then it sold off. Today, at about $151 a share, it’s down more than 37% so far this year.
Here’s a quick recap of the earnings report that has failed to provide any lasting momentum to Tesla’s stock. The company said that its non-GAAP revenue rose 59% to $1.75 billion, while GAAP revenue reached $1.21 billion. Tesla also said it delivered 17,478 vehicles in the fourth quarter and leased 881 cars, representing $85 million in aggregate transaction value.
Fourth-quarter deliveries were up about 76% over last year, and Tesla sees continued growth. For all of 2016, it plans to deliver between 80,000 and 90,000 compared with 51,000 in 2015.
The Question of Value
There’s no question, in other words, that this is a pioneering company that is gaining traction. The real question is whether Tesla’s stock is a fair representation of its value. This is always a difficult calculation to make for companies that are not yet consistently profitable since it requires looking into a crystal ball.
At its current share price, Tesla is valued at a little less than $20 billion, or about half the current value of General Motors (NYSE: GM). Of course, it is entirely reasonable to give a premium to so-called stocks of the future, and as an electric car maker, Tesla stands a very good chance of accelerating its growth.
In many ways, this is the same logic that has propelled Amazon.com (NASDAQ: AMZN) shares to frothy levels even as it lost money. But there is a key distinction between Amazon and Tesla. While Amazon’s online retail model, and later its cloud software business offered exceptional ability to scale, Tesla’s luxury cars realistically have much more limited growth potential. Even if electric cars do come to be widely adopted in the near future, there is no saying that Tesla will corner the market.
Tesla Motors has made significant achievements, designing cars that are not only good for the environment but also stylish, comfortable and high-performing. Unfortunately, none of that will necessarily translate into mass market adoption. Tesla’s stock still seems to be, like its cars, a luxury purchase for investors who can afford to gamble.
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.