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Don't get me wrong, I absolutely love Tesla (NASDAQ:TSLA) as a company and what it is striving to achieve. The company has literally changed the game, and more people than ever now believe that electric cars are viable ways to get around while reducing our dependence on fossil fuels.

However, with shares more than tripling since their 52-week lows and up over 35% in the past week or so alone, I have to wonder whether or not this may be an overreaction to a good quarter. Yes, I know that Tesla turned a profit quicker than anyone expected. Yes, I know the critical reception to the Model S has been better than even Tesla itself could have hoped for. But before we start assuming that Tesla is going to be the next $100 billion car company within the next five years (yes, I saw this in an article this week), let's see exactly what kind of growth is being priced into the company's shares.

At the current share price (as of Friday's close), Tesla's market cap is just under $9 billion. While this is still well below that of other auto manufacturers, let's take a look at some of the data behind the numbers.

Tesla expects to sell about 21,000 of its Model S vehicles this year, which prices between $70,000 and about $110,000 before a $7,500 tax credit. Using the median of the price range, let's say that Tesla's sales should total around $1.89 billion this year. The Model S will make up virtually all of the company's sales this year, with the Model X crossover now not scheduled to start production until late 2014, and the Tesla Roadster no longer being produced. The company has said that it intends to produce a lower-cost vehicle within the next several years. However, that is an ambitious goal.

To examine some mature automakers (which Tesla hopes to be eventually), let's take a look at Ford (NYSE:F) and Toyota (NYSE:TM). Ford is, in my opinion, the best-run American automaker. The company sold 5.67 million vehicles in 2012, totaling $134.3 billion in revenue, or about $24,700 per vehicle sold. Ford's market cap is about $55 billion, but to be fair, the company has about $101 billion in debt on its balance sheet. So, the entire company is valued at around $156 billion, or $27,513 per vehicle sold. Toyota's revenues in 2012 totaled $223 billion on sales of 8.87 million vehicles, for an average sales price of $25,140 per vehicle. Toyota has a market cap of $192.1 billion and $63.5 billion in long-term debt, so the entire company is valued at $255.6 billion, or $28,816 per vehicle sold annually.

Now, we all know that companies like Tesla are valued for what they are expected to produce, not what they currently are producing. So, taking an average of the two mature automakers listed above, the market values these companies at about $28,300 per vehicle sold annually. Since Tesla's average vehicle sells for approximately 3.18 times those of Ford or Toyota, let's say that a mature Tesla would command $89,900 worth of market cap per vehicle sold annually. Tesla has about $467 million worth of debt, so add that to its market cap; the company is valued at $9.31 billion. A quick calculation shows that if Tesla were a mature company, we should expect vehicle sales of about 103,500 per year. The current share price of Tesla implies that the market believes Tesla will achieve these sales figures eventually (within the next decade or two).

In order for Tesla to increase its sales (which are ambitious already) to this level, a few things will need to happen. First, it needs to make its current models affordable to lease or finance. On the front page of its website it's advertising a Model S for $580 per month, but let's just say that this number takes some "liberties" that don't really belong in the calculation. This figure takes into account the fact that you:

  1. live in California;
  2. drive 15,000 miles per year and put your electric bill savings toward your car payment;
  3. save 10 minutes per day by driving in the carpool lane and that your time is worth $50 per hour (I know, right?); and
  4. save 40 minutes per month by not having to stop at a gas station (at the same $50 per hour "time savings" rate).

I wonder if the company realizes how ridiculous its cost calculator is, particularly items three and four above. The actual monthly payment on a base Model S is $916 per month, so the company needs to just come out and say that. Not everyone can afford one yet, and that's OK.

In order to increase sales fivefold, however, a more affordable car with range capabilities similar to the Model S needs to become a reality. If I could lease an electric vehicle with a 200-mile range for the same monthly payment as my Nissan Pathfinder, I probably would. Affordability is the key to Tesla successfully jumping up to the next level.

For now, I think that the market may be getting a little ahead of itself when it comes to Tesla. Those who own shares should consider taking at least part of their position off of the table, at least until the share price stabilizes. I think that a more realistic goal for Tesla is 50,000 vehicles per year within five years, and this should be very attainable with the current product line, assuming the Model X can replicate the Model S's success. Using the above calculations, that would put Tesla's share price back in the mid-$30s, and I wouldn't be surprised to see it there again.

Source: What Tesla's Share Price Is Really Implying