How To Play The Tesla Motors Earnings Announcement

Feb. 18, 2013 11:08 PM ETTesla, Inc. (TSLA)F, GM122 Comments
Terry Allen profile picture
Terry Allen

Tesla Motors (NASDAQ:TSLA) crossed my radar screen this week because of the unusual debate going on between the New York Times reporter who disparaged Tesla's Model S (Motor Trend magazine's "Car of the Year" for 2013) and the Tesla's CEO Elon Musk, and because the company announces earnings on Wednesday after the close.

Tesla has sold about 2400 Roadster 2 electric cars in 31 countries from 2008 to 2012 (list price $107,000), presumably mostly in Europe where gasoline costs about double its U.S. cost. In late 2012, it commenced production of its Model S with a base price of $60,000. Its goal is to ramp up to a 20,000 annual production level, or about 16 times as many cars as its average annual production so far. That seems to be quite a big leap, but I thought I would check out what a car manufacturer might be worth if it were able to increase sales by that much.

Tesla is essentially a bet on the future of all-electric cars. There are apparently a huge number of believers - the market cap is in excess of $4 billion for a company with no earnings or significant production. This seems like an excessive valuation if electric cars ultimately end up being a niche market rather than a mass market. The other car manufacturers are focusing on hybrid models rather than all-electric, and are offering new models and lower prices each year, reducing (in my opinion) the long-run potential of an all-electric alternative.

Ford (F) sports a market cap ($49.64 billion) which is about 13 times Tesla's market cap ($4.4 billion). Ford sold 5.668 million cars in 2012, so each car sold is worth about $8758 in market cap value. General Motors (GM) has a market cap of $37.93 billion and

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Terry Allen profile picture
Publisher of options newsletter since 2001.. Thirty years experience trading options virtually every day. including stint as seat holder and market maker on the C.B.O.E. MBA from Harvard Business School and DBA from Univ. of Virginia Darden School. Author of Making 36%: Duffer's Guide to Breaking Par in the Market Every Year, In Good Years and Bad (4th revision - 2012) and Coffee Can Investing: A Better Idea Than Mutual Funds in an IRA or 401(K), 2014. is a newsletter that carries out eight different option portfolios which many subscribers mirror on their own or through auto-trade at several brokers who make all the same trades in individual customer accounts. Each portfolio offers something different (bullish, neutral, or bearish),and different underlyings (GOOG, SPY, SVXY, and other individual companies). In 2005, the S.E.C. brought an action against Dr. Terry Allen, claiming that he was managing money for people without being a registered investment advisor because of the auto-trade service offered by several brokers who placed trades in their customer accounts based on Terry’s Tips newsletter recommendations. A second complaint was for a single statement on his website that they believed was incorrect and therefore fraudulent. Although two large law firms assured Dr. Allen that if he went to court on the first issue, he would win because there was a Supreme Court decision stating that investment newsletters are exempt from registration requirements - it would be a violation of their First Amendment rights. However, they estimated that his legal expenses would be greater than settling with the S.E.C. (and a year or two of his time tied up in court proceedings), and both firms recommended that he accept the settlement offer while not admitting any guilt. The second issue (fraud) involved a single statement that was true when it was written but a couple of years later, option prices fell to 10-year lows, and it was no longer true. The S.E.C. argued that the statement was not removed from the website in a timely enough fashion. For the past eight years since the settlement with the S.E.C., Dr. Allen has have been publishing the Terry’s Tips newsletter (and recommendations are executed in customer accounts at thinkorswim by TD Ameritrade through their Auto-Trade program), and the S.E.C. has not objected to any of his activities.

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