Seeking Alpha
Long/short equity, deep value, special situations, contrarian
Profile| Send Message| ()  

How much does an idea cost? What price can you put on a dream? What is the value of a concept?

These are the questions that investors must ask themselves when buying Tesla (TSLA). Because while fairy tales comes true in dreams, they seldom come true when investing.

It's bad enough when investors buy into a company that is valued at $10 billion with hardly any sales, it's even worse when the financial situation of the company is going from bad to worse and might need capital very soon.

The term "might need capital" is a code name for capital increase, or as is more commonly known in the U.S., a secondary offering. And either way you slice it or dice it, that means dilution.

If we look at the chart below that depicts current assets and current liabilities, you will notice that current liabilities are a bit higher. In balance sheet terms, that means the company has no working capital left.

TSLA Total Current Assets Chart
(Click to enlarge)

TSLA Total Current Assets data by YCharts

Also notice that the company is losing about $90 million per quarter and only has about $124 million in shareholders' equity left. The question is, how long can the company continue to survive, before it raises capital? And at what price?

TSLA Shareholders Equity Chart
(Click to enlarge)

TSLA Shareholders Equity data by YCharts

Can Tesla really become a world class automotive player without billions in capital expenditures? I think not.

And just so investors have an idea of how expensive this dream is, the table below shows a comparison of Tesla to several other companies, that are actually producing something and making money.

Market Cap

Price/Sales

P/B

Revenue-ttm

Net Income-ttm

Tesla

$10 B

10

60

$944 M

-

General Motors (GM)

$43 B

0.28

1.6

$151 B

$4.71 B

Ford (F)

$56 B

0.4

$3.00

$137 B

$5.88 B

Honda (HMC)

$74 B

0.59

1.15

$125 B

$4.67

Alcoa (AA)

$9 B

0.39

0.68

23.5 B

$244 M

As you can see from the table above, General Motors has about 150 times the sales that Tesla will have, on a 12-month forward basis, and one quarter of the market cap. In addition, while General Motors is making money today, no one actually knows when Tesla will make its first dollar.

I have to admit I am not very good at valuing concept, idea or dream stocks. But then again, who is? In a fantasy market, however, anything goes. And while the concept and idea that Tesla represents, is what the world needs, the question is, what will the cost to current shareholders be -- in terms of dilution and capital raising -- in order to make this dream come true?

If you want my guess, several billion dollars at a very high cost in terms of dilution to current shareholders, making Tesla a very poor choice as a long term or even a very short-term investment.

Source: Tesla: An Idea, A Dream, A Concept