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General Motors Will Make Tesla Shareholders Cry From Frustration Within 5 Years

Jul. 07, 2017 12:33 PM ETTesla, Inc. (TSLA)GM142 Comments


  • Why Tesla will keep falling.
  • The fundamentals point towards an imbalance between Tesla and its auto peers.
  • General Motors appears highly attractive by comparison.

Tesla (NASDAQ:TSLA) is dropping like a rock over the past few days. There are three main reasons why I believe the end is not in sight.

ChartTSLA Price data by YCharts

Tesla is led by a celebrated CEO and these type of companies tend to underperform. Tesla is trading at fundamental valuation multiples that exceed that of the market and its peer group. Finally, the company is bringing a product to market but isn't actually there yet.

To illustrate why I believe Tesla's stock has a long way to fall, I've contrasted the company against its well known U.S. competitor General Motors (GM).


The fundamental truth is that Tesla is a high risk stock while it is priced as if it is already successful. General Motors can be bought at a sales to revenue multiple that is 20x smaller. A book to price ratio that is 10x smaller while it is spending a smaller amount of revenue on CapEx. That means it has much more Free Cash Flow.

In fact, General Motors trades at an Enterprise multiple of around ~6x cash from operations. Tesla trades at 112x.

Asset growth

Tesla is investing the funds it raises by issuing stock to build out its production lines, finance its R&D and market its products. There's an anomaly called the Asset Growth Effect and Quantpedia cites seven studies confirming it. The most important one being (Cooper e.a 2009). From Quantpedia:

Stocks with high asset growth underperform stocks with low asset growth. The effect is stronger in small cap stocks but is also statistically significant in large cap stocks; therefore, it could easily be implemented with small trading and slippage costs. The anomaly is robust and returns are strong even after risk adjustments. One more strategy advantage is its negative correlation to the equity market factor.

This article was written by

Bram de Haas profile picture
Special-Situation And Event-Driven Ideas To Improve Risk Adjusted Returns
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.

Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.

I've been writing for Seeking Alpha since 2013 after playing p0ker professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail

Analyst’s Disclosure: I/we 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.

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