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An inborn speculator. Investing is a game of calculating expected value.
  • Tesla's Share Price May Collapse After Financing 0 comments
    May 23, 2013 5:44 PM | about stocks: TSLA

    A successful electric car model! A turnaround investment opportunity! A winner prepares to pay back loans from Department of Energy. A future electric car empire! Today, Tesla Motors, Inc (NASDAQ:TSLA) is still catching the eyeball of the financial market.

    Next Google, Next Apple?
    Many optimists commented that Tesla will be next Amazon, Google, and Apple as it will change our world. So, it is still a good time to buy the electric car's giant.

    To be honest, I have never read a solid argument beyond their dreams. I am thinking about how many units to be sold and supercharging stations to be built in order to generate a huge profit, supporting a 10 billion market cap company.

    Kids! This is the power of innovation. We can see that Apple's market cap is over 400 billion because of i-series products. Google is around 300 billion, which mainly has incomes from advertisement. Why Tesla can't be one of them.

    Firstly, we look at the business model. Google opens a totally new market by its search engine. Apple only designs products, outsource production to Foxconn and market i-products in a pilgrimage. How about the Tesla's model?

    A good product ≠ A good business
    Tesla needs to produce the electric car itself. However, its production capacity of 2013 is around 21,000 units. If it plans to double or triple its capacity, it requires huge amount of capital investment. Meanwhile, it needs to train up workers, build up a supply-chain system and set up stores for after-sale services. Even though it can get enough funding from the capital market for investment, its operation system is still far away from making handsome profit in the next 2 years.

    So, we need to look at the next 10 years of Tesla! This is the argument I get from the optimist. Let's look at the competitive advantage of Tesla. Leading technology, right? Does the technology lead its competitors for 5 years? I don't think GM and Daimler cannot produce a similar product by 3 to 4 years research. There are 6 new electric car models coming out until 2014.

    Right, Model S is fantastic, but is it a profitable business? It is still a big question

    More importantly, the fuel filling networks, petrol and gasoline stations, do not build in one day. It is like building a railway system, requiring decades. The lack of a supercharge network is still a critical issue of the prevalence of electric car. Meanwhile, the benefit holders will not allow the electric car manufacturer to share their profits easily.

    After financing, back to the reality?
    It is hard to deny that Elon Musk is a very successful entrepreneur. Tesla may become the largest electric car markers under his leadership in the next two years.

    However, is there enough good news to support the market cap with super high valuation? As mentioned in above, there are "too much" good news to raise market expectation these days and optimists appear. Maybe, it is a strategy for raising more funds from the capital market. As an investor, we need to think what it will happen afterwards.

    It seems that no positive shock is on the list. Now, Tesla's stock price is at a "dangerous" high level without earning support. Beware of it!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

    Stocks: TSLA
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