Elon Musk is very smart and Tesla will be a highly successful and profitable auto manufacturer that changes human transportation. We know the first statement to be true, and hope the second comes to fruition. That being said, anyone investing in Tesla at today's prices is bad at math, doesn't understand investing, or is just hoping to sell to a greater fool while the game lasts at these stock prices. Let's look at the numbers.
Today, Tesla announced a loss of ($0.13) per share using generally accepted accounting principles(GAAP), the standards companies listed on U.S. exchanges are required to use. Their past quarters have been losses of ($0.32), ($0.26), ($0.00), ($0.79), and ($1.05). Non-GAAP came it as positive earnings this quarter. I do believe they won't have to buy all of their leased cars back at their low guaranteed pricing scheme in the next 3 years. Buying back those leased cars accounts for most of the difference between GAAP and non-GAAP accounting since they have to count that guaranteed payout as a liability when the car is sold. I think the residual value of the Model S will be higher than that 40% depreciation(I think) they are guaranteeing against. So, the non-GAAP earnings of $0.33 seems like it is a closer to accurate gauge of their quarterly performance.
So lets assume they made $0.33 profit this quarter, and for the year make $2 a share profit. At $218 a share right now, is $2 a share in annual earnings(this is a pretty generous estimate and involves non-GAAP numbers) a good deal as an investor? $218 in Apple would give you $20.36 in earnings/dividends last year, $218 in Wal-Mart would give you $19.21 in earnings/dividends last year, and there are plenty of other examples, both small and growing companies and larger slower growing companies.
There will be a dilution of shareholder value to pay for the new "gigafactory" Tesla is planning to build to satisfy its growing battery needs. At today's stock prices, Tesla will definitely raise capital by issuing more shares for sale, not borrowing money from a bank or selling bonds. It's common sense. Plus, the last time they issued more stock and diluted shareholder value to pay back government loans, the stock price rose quite a bit. I don't think that will happen this time around because the numbers in question will likely be much higher in terms of shares floated/dollars raised.
Long term, other auto manufacturers will be motivated to improve their EV offerings, so Tesla's mainstream 2017 model will likely not achieve 25% margin as they are getting now. I think the $80,000 Model S will continue to sell well due to the now global market. There are lots of wealthy people wanting a great car that is "cool".
Although it's not an impediment at today's volumes of consumers, the supercharger station issue will become a problem at larger scales. While Tesla claims 85% coverage of Germany's population, it has 4 charging stations. At about 10 slots per station, that's 40 people who can charge at those stations simultaneously in Germany, and that's the best covered country outside the U.S. And it still takes 30 minutes to convert 170 miles worth of chemical potential in the cells. These are being addressed, but the stock valuation is saying these are non-existent and will not hinder future demand.
I hope Tesla is successful long term. But at today's prices, Tesla will take years and years to grow into its earnings multiple(as well as billions and billions of dollars in infrastructure). Investors will realize that sooner or later, Wall-street will stop being its market maker, will take its profits, and the price will become more reasonable. Until that happens, find better investments that will make you more money, so you can then buy a Tesla car, maybe that new mainstream model due out in 2017.
Disclosure: I am short TSLA.
Additional disclosure: I am long AAPL