Why Bears Are So Wrong About Tesla

| About: Tesla Motors (TSLA)

Recently, there have been two articles at Seeking Alpha, comparing Tesla (NASDAQ:TSLA) to other automakers. The first one calls bull wrong for defending Tesla and the previous one reccomends shorting Tesla. The justification provided by both is that Tesla has a higher P/S ratio than other automakers. The first one even compares Tesla's P/S to tech companies like Amazon (NASDAQ:AMZN), SalesForce (NYSE:CRM) and Netflix (NASDAQ:NFLX).

I have myself compared Tesla to Pandora (NYSE:P) and Twitter (NYSE:TWTR) before and also compared it to other automakers. With this article, I hope to justify Tesla's premium to other auto makers with the simple logic - higher growth implies higher ratios. Here is a chart from the first article by Achilles Research:

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This implies that Tesla's P/E is 11 times the average. The next chart from the article compares P/S:

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This implies that Tesla's P/S is about 20 times the average of the others.

Now let's look at growth. Tesla is expected to nearly double sales next year from 21,500 cars to 40,000 cars a growth of 86%

GM Revenue (NYSE:<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

The average 5 year revenue growth for GM (NYSE:GM) is 2.6%, for Ford (NYSE:F) is 3.7% and Toyota is 4.5%. In a pretty chart, assuming that next year the big auto companies grow at their average rate, that looks like this:

This is eerily similar to the above charts and gives Tesla a 24 times higher growth next year than the three big auto companies it was compared to.

This high growth pattern is something only demonstrated by Tech companies and that justifies Tesla trading at the premiums given to other high growth companies.

The second article I linked above by David White also presented other arguments against Tesla:

Comparing Superchargers to Gas Stations: Electric Cars don't need gas stations because a simple outlet is a gas station. Suerchargers are only for long distance travel and free. So the author needs to compare the number of outdoor/garage outlets to the number of gas stations, not the number of Superchargers. Also Tesla's can be charged anywhere not just at superchargers.

Tesla Sales in Europe are low: Tesla sells every car it makes and it has a six months to one year backlog of orders. Based on customer deposits, Tesla has a backlog of about 20,000 Model S cars. Based on Model X reservation numbers about $55 million of customer deposits are for the Model X. The rest are for the Model S and at $2,500 per car we come to an approximate 20,000 reservations and these reservations are rising.

Bricking and Vampires: The other argument the author has is that Tesla cars may "brick" - i.e. the battery will be completely dead and unusable. However, Tesla has an unconditional battery warranty and they have solved this problem with the Roadster battery. Also the problem of Vampire drain from the battery has already been fixed by a software update.

Range indicator showing faulty data: Even gas cars don't have 100% accurate range indicators. That is not possible thanks to variation of driving conditions.

Temporal nature of the European (and likely the US) subsidies: The Model S is a high end car in a price range where subsidies do not matter. The customer who buys a car in the $70,000-$110,000 price range spends more in options on cars than the entire offered subsidy. And even for a subside conscious customer for such a high end car, the convenience and savings of an electric far outweigh the subsidies. This is not a subcompact like the other electric cars where subsidies are the only reason for the sales.

Tesla was supposed to be technically perfect: That is an impossible proposition but Tesla does have the best way to fix technical issues remotely without going to a dealer over Wifi.


I hope I have cleared some myths about Tesla as a stock and Tesla as a car. I leave you this chart to consider:

TSLA Revenue (<a href='http://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>) Chart

Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.