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Cars TSLA Ownership change

Published on October 1st, 2013 | by Zachary Shahan

31

Tesla’s Insane Stock Surge — Why, & Why People Are Still Investing In Tesla Stock

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October 1st, 2013 by Zachary Shahan 

Originally published on EV Obsession.

At the beginning of the year, I had the strong sense that it was a good time to invest in Tesla. I had never bought stock before, but from covering the Tesla Model S and other electric vehicles, I got the sense that a ton of people were not properly evaluating the future of the automobile, the likelihood that electric car sales would surge and take over. Naturally, Tesla is the icon of this industry. It is not only an awesome electric car, but is also widely considered the best car ever mass manufactured (by auto journalists and gearheads). Its manufacturing was just starting to ramp up, things were going well for the company, and it looked like 10 years or so of investment were indeed going to pay off.

Sure enough, with one positive announcement after another, Tesla’s stock jumped, and jumped, and jumped. I wanted to kick myself for never making the time to set up a trading account and buy some stock in the company. I now have a trading account, but I still haven’t invested any money anywhere, and I’m unlikely to invest in Tesla anytime soon. By pretty much all reasonable standards, Tesla is grossly overvalued at the moment. In an interview with CNBC, Elon Musk (Tesla’s co-founder, CEO, and Product Architect) even seemed to say so.

Nonetheless, I wouldn’t necessarily say that people who have Tesla stock right now should dump it. I do think I understand why so many people have invested in Tesla, even as the stock price has risen to an insane level. Before writing about that, though, let’s just take a quick look at a few numbers and graphs.

This is a one-year look at Tesla’s stock price trend:

tesla stock tsla stock

It’s stock price is currently at $193.37.

On January 2, it was approximately $35.

BofA Merrill Lynch thinks Tesla’s true stock value today is around $45. BofA Merrill Lynch writes: “We continue to view Tesla shares as vastly overvalued and maintain our $45 PO, which is based on a 2015e EV/EBITDA multiple of about 12X (currently 12.7X).  We note that our valuation multiple is relatively consistent with the simple average of 2015 EV/EBITDA multiples for a group of 35 growth oriented tech companies, based on consensus estimates.”

At the moment Tesla is worth about 44% what GM is worth. Christian Science Monitor writes: “GM has built over 450 million cars in its 105 years while Tesla has made about 25,000 over 10 years.”

Really, the projection for how successful Tesla will be in the future (based on how much people are investing in Tesla) is extremely optimistic. And, notably, it’s increasingly retail investors (not institutional investors) who have been betting on Tesla. Here’s a chart on that from BofA and Bloomberg, via NASDAQ:

TSLA Ownership change

One more quote from BofA is as follows: “We estimate that Tesla’s current share price implies approximately 628K vehicle sales in 2020 (versus an estimated 21K in 2013)…..Generating luxury margins on a mass market vehicle is likely to prove incredibly challenging, and represents another major hurdle to the bull case, in our view.”

Quite frankly, people investing in Tesla over the past few months have an extremely optimistic view of Tesla’s future role in the automotive industry. Again, even Elon Musk has acknowledged that the optimism is very “generous” — and that was actually over a month ago, long before Tesla’s stock price approached $200.

So, on to the topic in the title….

What Are Tesla Investors Betting On?

Shai Agassi recently made the point that the company that leads the way into a new market is often generously rewarded for years or even generations to come. The hope here, for those who have been investing in Tesla, is twofold:

1) that electric cars will explode (in a good way), taking a huge portion of the automobile market;

2) Tesla will dominate that market.

Frankly, I’m a firm believer in #1, but I’m not so sure about #2. I wouldn’t bet against Tesla becoming a major auto manufacturer, but I certainly wouldn’t buy stock in Tesla at the moment, since I think the chances of it not becoming so huge are also considerable. But back to the investors (not me)….

Why would Tesla dominate the EV market? There are a few good reasons for that. First of all, as Shai noted, there is very much such a thing as “first mover’s advantage.” Tesla will forever hold a historic role in the history of the electric car, and the automobile as a whole. Tesla transformed the perception of electric cars — more than once. And Tesla has created electric cars like no other.

Furthermore, as noted above, Tesla’s Model S has been recognized as a superb machine. Not just a good car, not a great car, but by many accounts the best car on the market. Not a luxury car, but a “performance car.”

Both of those things put the Tesla brand in a very good place. It very much does make Tesla something akin to Apple for the automotive world. Tesla, like Apple, opened up a whole new market. Like Apple, it is known for unmatched quality and dedication to perfection. Like Apple, it is doing many things in a different way business-wise, in a way that sets it up for growing rockstar status and consumer obsession. Once it starts producing cheaper vehicles that still have Tesla quality, performance, and branded (targeted for 2017 — promised, even), it could very well come to dominate the electric car industry, and industry that will be much, much larger within a few years.


The counter to that is that the major auto companies of today have economies of scale they can benefit from and actually are indeed electrifying their lineups at a fairly fast rate now. They are also beginning to build more electric models from the ground up, which will result in better electric vehicles that are designed to take advantage of their numerous strengths. They could potentially squeeze Tesla into a corner of the EV market.

However, as noted above, there are reasons to have faith that Tesla will plow forward and defy odds as it has done for years, that it will become as well known as BMW or Mercedes, that it will grow to an annual sales total equal to 44% or even more than 44% of GM’s total.

It is definitely a risky investment. But people have read the stories of Google investors, Apple investors, and Amazon investors who have become rich through their foresight, through their faith in the future. And I think that, combined with all of the above, is why Tesla’s stock has climbed so high and continues to climb, even as it is so far above what the likes of Goldman Sachs and BofA Merrill Lynch think it’s worth.

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About the Author

spends most of his time here on CleanTechnica as the director/chief editor. Otherwise, he's probably enthusiastically fulfilling his duties as the director/editor of Solar Love, EV Obsession, Planetsave, or Bikocity. Zach is recognized globally as a solar energy, electric car, and wind energy expert. If you would like him to speak at a related conference or event, connect with him via social media. You can connect with Zach on any popular social networking site you like. Links to all of his main social media profiles are on ZacharyShahan.com.


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  • Ivor O’Connor

    I’m interested to see how the stock prices will react to the fire.

    I personally think this should have very little impact but it looks like there are many people ready to pounce on this.

    • Bob_Wallace

      Boehner has said that the House won’t default on the debt. That means that the stock market probably won’t dip too badly.

      (Too bad for me, I’m sitting here with some money to invest if there’s a 10% to 20% sale.)

      Of course there’s the problem that Boehner isn’t trustworthy. He’s said one thing and done the other several times. Said things in private and the opposite in public.

      Will be interesting to see how House Republicans get themselves out of this mess. I think it highly, very highly, unlikely PBO and Harry Reid will back down. I think they see this as a major fight which must be won.

      The big issue is who comes out of this controlling the Republican party. Will it be the Tea Party or corporate Republicans?

      • Ivor O’Connor

        My comment was about the random fire in a Model S Tesla earlier today. Seems the battery pack was punctured by random road debri in just the right manner to start a fire that totally engulfed the car.

        • Bob_Wallace

          Damn. That’s the second time today I’ve screwed up by posting via email and confusing topics.

          Too much stuff turning up on my screen this morning. Need to take the extra time to go to the page….

          • Ivor O’Connor

            lol. You do a hell of a better job than me of keeping track of things.

        • guest

          “Seems the battery pack was punctured…” what if the battery pack was in water as the car if going through some ad hoc puddle due to the severe rain let’s say ?

          • Ivor O’Connor

            I assume Tesla has done some extreme perturbation testing though I have not seen them.

  • jo

    “I wanted to kick myself for never making the time to set up a trading account and buy some stock in the company. I now have a trading account, but I still haven’t invested any money anywhere” You incompetent idiot. why are you writing an investing article?

  • Sean

    why wouldn’t tesla take advantage of this price and offer more stock?
    surely they have plans for expansion?

    • Bob_Wallace

      It’s dangerous to outgrow your talent pool and supply lines.

      Tesla’s going to have no problems raising money for growth as long as they keep playing smart like they’ve been doing.

  • beernotwar

    The stock price really is a vote of confidence in Elon Musk himself as much as in the prospects of their current business model. Once the big boys start cranking out low-priced EV’s Tesla is going to be blown out of the water in terms of pure sales. But just like the PC never killed Apple, GM won’t kill off demand for what Tesla offers in style, quality and performance. And Tesla will find a way to keep pushing the market in new ways, which is where Elon Musk’s vision comes in. When GM starts to bury them with sales, he’ll just Tony Stark his way into a new niche in the market, or expand into a new market altogether.
    That said, it’s usually not a good idea to bet on magic happening for a stock to be a good value.

    • CGriffin

      Tesla is currently working on a 500 mile battery pack for future versions of the Model S and Model X. As the article states above, Elon Musk has promised a slightly smaller third generation EV by late 2016 or early 2017. This platform will be offered in both a sedan and SUV/Crossover, and will go (at least) 200 miles on a single charge and be priced around $35,000. This will be a car that middle-class families CAN afford and will sell in massive quantities.

      • Bob_Wallace

        If he markets 200 miles for $35k I suspect other manufacturers will grab a much larger market share with lower priced 200 mile range EVs. The market will go to <$30k and not pay the extra for luxury features.

        Tesla is not a battery manufacturer, but a consumer. It's unlikely that a battery manufacturer who develops a higher capacity would write an exclusive sales agreement with Tesla, but would sell to the general market.

        After all, if you come to market with a "2x capacity" battery you better grab what profits you can right then. Someone could come along in the next few months/year with a "3x capacity" battery.

        • CGriffin

          With the Tesla Model S’s STELLAR reputation for quality and safety, I know many people would find a way to cough up the extra ~$5,000 to buy their version over some General Motors trash. I know I will…

  • bobhodgen

    Tesla is a disruptive company. Much like what Amazon did to bookstores and iTunes did to record stores, Tesla is doing to established auto companies. The auto manufacturers haven’t realized it yet, but their products are obsolete.

    • Bob_Wallace

      I don’t buy that. Established car manufacturers will just fade out ICEs and fade in electric motors and batteries.

      About the only company dragging its feet is Toyota. And it’s in bed with Tesla.

  • peteraltschuler

    It is not the car alone that’s compelling. It’s the overall vision of a national infrastructure to support the vehicles (and, potentially, other manufacturers’ cars, as well). By the end of next year, it will be possible, if all goes according to plan, to drive a Tesla from coast to coast, charging or swapping the entire battery pack along the way. That’s a strategy that the oil companies could have adopted (and may yet) — since their stations are already in place — but their refusal to admit that technology is evolving may find them left behind. As the viability of long-range electric cars improves and the desirability is sustained through deals such as the latest one with Hertz, Tesla becomes not simply an automobile manufacturer but a provider of complete transportation systems.

    • Bob_Wallace

      Good points.

      Tesla is a new company and seems to have taken a harder look at how to make their product a success. Other EV manufacturers have mostly just made an EV and are waiting for demand to grow.

      Tesla has re-imagined the entire business.

      • peteraltschuler

        It’s an entrepreneurial perspective, and the major automobile companies haven’t taken that kind of initiative since the EV1 (which was sabotaged by the lack of a similar support system). The oil companies still haven’t acknowledged the opportunity (and threat) of electric power and, unless GM, in its plans to develop a competitive electric car, provides an electric ecosystem like Tesla’s (or taps into Tesla’s own), it will repeat the experience of the EV1.

        • Bob_Wallace

          The EV1 didn’t fail because of lack of charging infrastructure. Fuel prices were too low and battery technology too limited to allow affordable EVs at that point in time.

          There are thousands of public places to charge already. There is a distinct lack of rapid/Level 3 chargers for non-Tesla cars, but there aren’t 200+ mile EVs except for Teslas to create demand.

          Right now batteries simply don’t allow for a less expensive EV capable of long distance driving. One has to pay luxury car prices to get long distance.

          If, for example, GM’s “200 mile range” battery that they apparently are testing works out then we could easily see a <$25k "Spark" with enough range to drive from coast to coast using rapid chargers. That happens and "Sparks" will start using Tesla chargers or a separate set of rapid chargers will be built.

          I'm sort of guessing that Tesla might end up owning rapid charging. Because they will be in place they will be able to service short term needs and then start increasing their count. They could charge non-Tesla drivers a reasonable fee and use the profits to keep providing Tesla buyers free charging.

          Elon and his people seem to be thinking things out quite well….

          • http://zacharyshahan.com/ Zachary Shahan

            Yes, I have a feeling Tesla will eventually set some lucrative partnerships for use of their practically monopolistic Superchargers. We’ll see.

          • Bob_Wallace

            Nothing monopolistic about their chargers. Other manufacturers have not made their EVs capable of taking as large a charge as the S will take.
            I think Tesla has already stated that they are willing to share.

          • http://zacharyshahan.com/ Zachary Shahan

            Yeah, I just mean that by the time others catch up, it will be hard to compete with what Tesla has built out. (Basically, what you said but in a different way :D)

          • Lance

            About this super charger network… How many exist? Around 20 so far? How many gas stations are in the US? I think the extent of Tesla’s network is being exaggerated. How much would Tesla need to invest to set up a charging station on every corner? This stock is massively overvalued.

          • Bob_Wallace

            Here’s the map. Look down the page a little. And use the slider to see where they will be going in over the next few months.

            http://www.teslamotors.com/supercharger

            As for gas station comparisons, you’re using the wrong metric.

            We don’t need a super charger or any kind of charger on every corner. We simply need to expand the number of electrical outlets where people park. About 60% of all drivers already have a place to plug in. Those people will rarely need a public charge point, only when they take a long trip.

            Over the next 10 to 20 years we’ll add more curbside and parking lot outlets (likely wireless charging) to take care of the other 40%.

            Let’s take a look at American driving patterns. Look how few of our trips are longer than even the rather limited lower range of more affordable EVs. We simply don’t get in our cars and drive long distances very often.

            We need rapid chargers only for those small percentage long trips. Otherwise we’ll charge while parked, which is how most cars spend 90% of their time.

          • CGriffin

            The Superchargers are NOT for everyday charging for Tesla’s customers, so Tesla Stations will never be needed “on every corner”. The vast majority of charging will be done in their garages at night (off-peak hours when electricity rates are lower). The car is EPA Certified to go 205 miles with the 60kwh battery pack, and 265 miles on the 85kwh pack. The only reason someone would need to use a Supercharger is for the occasional long commute.

    • http://zacharyshahan.com/ Zachary Shahan

      Good points.

  • Ivor O’Connor

    Stock prices are hard to fathom. I too recognized it was a good time to buy Tesla at the beginning of the year. However I don’t see Tesla stock losing value despite traditional analysis to the contrary. The price is more of a vote of confidence than a sign of the companies value. And voting on Musk’s ability to use that money wisely is a vote I think everybody can agree on.

    • http://zacharyshahan.com/ Zachary Shahan

      Agreed.

    • Amerman

      voting on Musk’s ability to use that money wisely
      === ==
      What money?

      The price is more of a vote of confidence than a sign of the companies value

      ========= =
      Pretty much the definition of a bubble.

      • Bob_Wallace

        Vote of confindence – somewhat.

        I suspect more of an attempt to get in close to the bottom on a company that shows potential of going major. Like buying some Microsoft or Google stock early in their growth cycles.

        No guarantees as is the case with any stock speculation, but the possibility of a major payout.

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