In recent days I have watched in amazement as the stock of Tesla motors has skyrocketed from 38 dollars to almost 90 in the span of a month. The shares have done so at a trajectory which based on price action alone has been quite manic. It began when Tesla announced they were going to begin a leasing program which was heralded as revolutionary. Yes, an automobile company with a leasing program. Next Tesla reported a profitable quarter for the first time in its history. Investors quickly overlooked that "the bulk of Tesla's net gain stemmed from a one-time, $10.7 million bonus for repaying a Department of Energy loan early, and the company also derives revenues from selling excess emission credits to other carmakers, a stream that is likely to decrease in the years ahead." Finally, Consumer Reports gave Tesla's model S a good rating which served to excite giddy investors even more. The thing is, in spite of all this hoopla being generated in the media I still don't know a single person that's considering a Tesla or any other electric vehicle for their next car. Living in an area were thousands of cars were damaged by Sandy and with a Tesla store in the local mall I haven't seen one new Tesla on the road. In fact I've never seen one on the road. Think about that. This is a company approaching a 9 billion dollar valuation and many of us have never seen one on the road, don't know anybody who has purchased one and know plenty of people that never have any intention of ever buying an electric vehicle. Certainly not one they have to pay a hefty premium for. Which brings us to the value of the stock at current prices. Price is what you pay, value is what you get. With its straight line ascent I venture to suggest there that the risk to investors at this point has increased exponentially. Lets remember that the company has exhibited a significant cash burn over time and that the recent price action affords the company the prime opportunity to issue additional shares to the public and dilute current holders. Risks to the downside are ignored until they aren't and with the recent trajectory of the shares I believe we have now entered a period when the margin of safety has all but disappeared.
Disclosure: I am short TSLA.