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Tesla Motors Inc (NASDAQ:TSLA) Back In Favor With Investors

Written by on December 28, 2016

Tesla Motors Inc (NASDAQ:TSLA) seems to have put its 2nd quarter earnings behind it and about to regain the ground it lost after the results came out with their slight note of caution about the company possibly failing to meet its 2015 target of 55,000 vehicles sold.

Since the 2nd quarter results came out, the biggest piece of good news has been the release of Consumer Reports’ ranking that chose the Tesla Model S as the best car it has ever tested. Consumer Reports says that the Tesla Model S P85D “performed better in our tests than any other car ever has, breaking the Consumer Reports Ratings system.”

The Model S P85D is one of the higher end Model S varieties with an 85kWh (kilowatt hour) battery and bears a six-figure price tag. The entry level Model S 70 which the company recently launched has a more consumer-friendly $70,000 price tag which Tesla claims comes closer to $50,000 after subsidies and fuel savings are taken into account.

The Model S P85D initially scored 103 out of 100 in Consumer Reports’ Ratings system. So, it had to change its ratings to keep the score down to 100.

The Model S P85D is less than perfect, according to Consumer Reports, even though it has a price tag of $127,820.

Tesla projects producing 12,000 Model S sedans in the 3rd quarter including a few Mode X SUVs towards the end of the quarter. The company is investing heavily in retooling its plant in Fremont as well as in building the Gigafactory in Nevada. All this means its cash reserves are now down to $1.15 billion at the end of the 2nd quarter, down $359 million sequentially, with capital expenditures of $405 million in the 2nd quarter.

Tesla continues to be in the red with some calculations suggesting a loss of $4,000 per Model S sold. Tesla does not have a roadmap into profitability as of now. Profitability is completely dependent on a successful roll out of its mass market Model 3 in 2017. Tesla hopes for half a million vehicle sales by 2020. Profitability will only likely happen after that.

Tesla’s Unique Marketing Approach

As with every other aspect of the car business, Tesla is also taking a new approach to selling its cars. As it spends $2,000 on each car sale, it sought to let its customers become its salespersons whereby customers could refer buyers and each would receive $1,000 in benefits with the new buyer getting a straight $1,000 off from the sale price of the Model S and the current owner getting credits of $1,000 which he can utilize in buying Tesla accessories or on the cost of a rare service center visit.

Famous Tesla owners including Alyssa Milano and Richard Dawkins have shared their referral links on Twitter. Finally, Tesla is also offering a free Model X SUV to the first person to refer 10 friends in each of its sales regions: North America, Europe and Asia-Pacific.

Tesla Stock Price

The Tesla stock price has zoomed in recent years. It was trading at near $290 in early September of 2014 after which it declined and started steadily climbing up since April 2015 and reached $280 a month ago before going downwards. The company has a market capitalization of $30 billion. It projects annual sales of 50,000 to 55,000 cars this year, it’s worth reiterating.

General Motors has a market capitalization of $45 billion while Ford and Audi have market cap of $54 and $38 billion respectively. Honda and BMW each have market cap of $55 billion. It is clear that Tesla’s stock price is predicated on future growth but even if that growth becomes real, Tesla would appear to be an expensive stock. Tesla stock has gained more than 1,100% in the last 5 years and that is a problem because most of the growth in the stock price has probably already occurred.

If judged against its automotive industry peers, Tesla seems overpriced as the others like GM and Ford have revenue many times their market capitalization. When compared against Silicon Valley leaders such as Apple and Google, Tesla with a market cap more than seven times its turnover seems expensive compared to Apple whose market cap is less than four times its revenue.