TESLA: The revolution is coming…?

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The revolution is coming…?

With Tesla stock peaking at over $280.67 per share, investors are again showing signs of nerves as shown in a 4.8% fall after the last earnings call. The value of Tesla is similar to Nissan despite the electric car and batteries company producing less than 10% of the cars the Japanese giant makes. Why is Tesla valued so much? It promises a revolution.

Musk’s vision

Elon Musk has been promising a revolution in electric vehicles. He plans to force the cost of electric vehicles (EVs) down by producing them at a volume similar to petrol and diesel powered cars. Where it is producing 80,000 cars a year now, this needs to go up to 800,000 or more so he can sell at the profit margins per car that Ford or Nissan do.

The promise of a revolution, where EVs cost the same as fossil fuelled cars, is what has allowed Tesla’s stock value to rocket to prices similar to that of Apple and Amazon, despite physically producing the same amount of units that a medium-sized sports car company can.

Musk has been spending the available cash from the value of his company on building factories. He is building the world’s largest battery factory in Nevada and is retooling its Fremont car factory in California with a view to producing half a million Model 3 cars a year by 2018.

More money needed?

While it is all well and good promising ‘jam tomorrow’, investors need to see returns on their investment. They also fear that Musk may start asking for more money. The official line is that the car company has enough cash to make the revolution happen, but a lot of people are getting nervous and this led to the slide in share value last week to $260.32. Even with a dip like that, the company is overvalued considering that it only produces 80,000 vehicles a year.

Bulls in favour

German banking giant Deutsche Bank is holding its nerve at least, with its advice to investors being not to sell the shares they have in Tesla. In the bank’s view, Tesla is “in an advantaged position to several of the most important Auto Industry trends.” Even so, Deutsche Bank don’t recommend buying more shares as there are too many unknowns. Will the Model 3 sell as well as the company forecasts? Only time will tell…

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