Does Elon Musk Think Tesla Is Overvalued?

Jun.10.14 | About: Tesla Motors (TSLA)

Summary

Tesla stock is based almost solely on the company's future execution.

Elon Musk was poked about his stock's price in yesterday's CNBC interview and he came off as a bit coy and dodgy.

Is there a chance Musk believes his company's stock is far out ahead of the company's tangible progress?

For those of you that have read me regarding Tesla (NASDAQ:TSLA), you know that bulls of the company have been dead on as far as we go. I've been penning bullish pieces on Tesla from October 28, 2013 where the price was in the $160s before its drop to the $120s, all the way up to our current share price of about $205.

In that time, Tesla has made a lot of people a lot of money. In the last year alone, the stock has been up 105% and since the beginning of 2014, it's been up 36.5%. Let us not even consider the ten bagger plus that Tesla has offered to those that were in on its IPO, priced at $17.

There is no doubt that so far, it's been a hell of a ride.

Tesla CEO Elon Musk appeared on CNBC yesterday to discuss the launch of its new right hand vehicles overseas and the coming Gigafactory.

Talking about the coming Gigafactory, he confirmed that it's going to be one of the largest factories in the world. He made it clear that getting one in two years would be an extreme accomplishment. It isn't unlike Musk to set out lofty goals for himself and his company - and then get them done.

"The scale is really staggering," Musk said.

When he was asked about the stock price, Musk acknowledged a bit of the inevitable, as any company's CEO would have to. He noted that he thought the company was trading with some "optimism" behind it, and that the stock is priced for the company to execute its future plans.

"I think it's probably not too crazy," Musk commented on Tesla's share price. "I think there's a lot of optimism."

That's the CEO's way of acknowledging that its company's stock is trading at a massive multiple. For all intents and purposes, this is the right way to acknowledge that. Trying not to sound too bullish, Musk then commented that he thinks the company will continue to execute in the future.

Think Musk was a little tongue tied? Let me offer some perspective; the wrong way to acknowledge that you're trading at a massive multiple belongs to athenahealth (NASDAQ:ATHN) CEO Jonathan Bush who, while his stock is trading at a forward P/E of 97, at $125/share, recently made this bonehead comment in a similar CNBC interview:

"I'm absolutely sure this is a $1,000 a share stock, but I have no idea when it gets there."

Immediately after which he said:

"I don't know anything about valuations..."

So, Musk said what he could.

There is no doubt that Tesla's share price is propped up mainly by the perception of whether or not Tesla is going to be able to execute well into the future. To put a $24 billion price tag on a company at this stage is a massive leap of faith forward. But, as I've noted in the past: of all the big multiple names, this is the one I'd like to be in the most. And that's coming from a "fundamentals" guy.

Tesla hasn't given anyone a reason to doubt them.

So far, they've done everything they've set out to do and are arguably in the process of re-writing the book on automotive history. So, why would we doubt Tesla's CEO? So far, Musk has done everything he's set out to do, and more.

People are trying to "read the tea leaves" when they trade Tesla, as Musk said in his interview. I tend to agree; the emotion felt to the upside and to the downside on Tesla every day is nothing more than a product of the day's trading, usually without news to back it up.

The latest headlines over the last couple of months have been all about analyst reports on the company, and how bullish they are. These analyst headlines have recently been reported by Seeking Alpha:

  • S&P weighs in on Tesla Motors with a B- rating and Stable outlook on the company.
  • The ratings agency forecasts Tesla will sustain its gross margin rate over the next year, but warns on long-term risks.
  • S&P on Tesla: " ... the company is less likely (compared to larger, more established automakers) to successfully adapt to competitive and technological displacement risks over the medium to long term."
  • Morgan Stanley takes Tesla Motors on a victory lap as it tears down what it sees as the standard bear case on the EV automaker.
  • Distribution: MS notes the ultra-powerful dealer lobby has cracked in a few states and Tesla has the backing of the FTC over the direct sales model.
  • Gross Margin: Tesla hit the 25% gross margin level that skeptics claimed wasn't achievable. On tap is marching close to 30% as scale comes into play.
  • Gigafactory: The support of Panasonic is proof enough for MS that the gigafactory can deliver the battery cost reductions promised.
  • For those scoring at home, Morgan Stanley is in with a $320 price target on Tesla.

While the whole world watches Tesla's share price, Musk, like any good CEO claims that he doesn't check the stock price on a day-to-day basis (that's why you have an IR department, CFO, etc). While I don't necessarily believe these comments, it seems like the type of comment you would make when looking to somewhat dodge the question. Why dodge the question here? Squeamish about making even more bullish statements? Nervous about the stock actually being overpriced?

I'm sure Musk would have loved to come out and have said that he thinks they're worth that and more, but he would have likely put the company's securities lawyers into cardiac arrest with a statement like that.

So, he said the only thing he could, the only tune he knows, he thinks they're going to continue to execute.

But there was a part of that interview that made me quickly ask myself the question:

Does Elon Musk think Tesla stock could be overvalued?

As confident as Musk is, it's not likely, if you ask me.

For the record, I remain bullish on Tesla for the long term.

Best of luck to all investors.

Disclosure: The author is short ATHN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.