By JinBae Kim
The potential for Tesla (TSLA) is very high. Its stock has doubled since its IPO in 2011, and recently hit a 52 week high at $39.95. However, the market is very ambivalent about Tesla. Tesla is trading at a 199% premium to its $17 IPO price, but it is one of the most shorted stocks in the market. Analysts have target prices ranging from $49 to single digits.
The reason for this division among analysts and investors is understandable. Tesla, an independent start-up company in Silicon Valley, is trying to transform the global transportation industry. Tesla is selling highly innovative products that the world has not seen before. Additionally, 90% of Tesla's 2012 expected sales comes from Model S, which should be launched in July.
At the same time, other independent electric vehicle firms and battery makers are experiencing serious financial issues. The growth of this niche industry is much slower than expected. Hence, many independent companies lack the capital to stay in business. Companies like Bright Automotive, Aperta, Think Automotive, and Ener1 (HEV) have alreadygone bankrupt and exited the market, while A123 Systems (AONE) and Fisker are experiencing financial problems.
All this negative speculation about the prosperity of this industry is bringing down Tesla. However, Tesla is showing very positive signs, and I believe the industry will flourish in due time.
Tesla was the best global performer in the electric vehicle market for the year 2011 and for the first quarter of 2012. The firm's financial numbers look promising. Tesla is on track with its Model-S plan to deliver these models by this summer, which should penetrate a different sector of the market. And the US government completely supports this firm, with hundreds of millions of dollars in Department of Energy loans, and $7,500 federal tax credit to Tesla consumers.
160 MIles/119 MPGE**
100 miles/99 MPGE
Chevrolet Volt (hybrid)
35 miles/94 MPGE
62 miles/112 MPGE
Fisker Karma (hybrid)
50 miles/52 MPGE
18 City/28 Highway
14 City/19 Highway
Mercedes Benz E350
20 City/30 Highway
Jaguar XF Sedan
16 City/23 Highway
Source: Fast Company.
The industry will flourish in the next 10 years because there is a true value for electric vehicles, and governments all around the world are dedicated. Electric vehicles are one of the solutions to rising gas prices and environmental problem. Costs of electric vehicles can potentially be much lower than an internal combustion engine vehicle with the right infrastructure. Annual fuel cost of electric vehicle is $279, while annual fuel cost of an internal combustion engine vehicle is $1,625. Electric vehicles are the future. There is a reason why existing internal combustion engine vehicle manufacturers, including Nissan (NSANY), GM (GM), Ford (F), Mitsubishi (MTU), and Daimler (DDAIF), have invested heavily into this business.
The governments all over the world are giving out loans and developing aggressive plans to set up the infrastructure, like charging stations. The German government is funding $700 million into electric vehicle initiatives, including plans for the development of a charging station infrastructure. China and the US formed joint Electric Vehicle Initiatives, which includes a joint development standard, a number of demonstration projects in a variety of cities in both the United States and China, technical road mapping, and projects to disseminate information to the general public.
There is no doubt that there is a high risk in Tesla. But I believe in Tesla and Model S. Tesla is a sound company, and all indicators point in the right direction. Once the Model S comes out, Tesla can operate at a niche market and grow slowly from there.
At the current stock price of $31.79, Tesla is undervalued and high profits can be realized here for investors. That being said, it is important to trade this stock with extreme care, as it is volatile.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TSLA over the next 72 hours.