Tesla: One Of My Favorite Companies Became Fundamentally Overvalued

Nov. 30, 2020 3:57 PM ETTesla, Inc. (TSLA)222 Comments


  • While in the midst of a strong period of production growth, current expansions will fall short of generating enough income to justify today’s value, even if demand exceeds production.
  • With a host of new competitive threats entering the EV market in the coming years, Tesla will face strong competition that will eat away at its vehicle demand.
  • Tesla’s peers in the autonomous driving field have received valuations that are dramatically lower than Tesla’s own, representing a clear disconnect between the company and its market.
  • Recent value growth has come from value spikes that result from overhyped news reactions and has created the disconnect that Tesla experiences with reality versus its valuation.

Barring my latest article, I have been quite vocal about how Tesla (NASDAQ:TSLA) was unfairly ridiculed by financial analysts as nothing more than a money-burning corporation, destined to fail, lacking any path to profitability. I often touted its future growth as a reason to invest and a means to justify the company’s weak financial past. With the future at the forefront of Tesla’s valuation, the company was due for a spike in its value upon realizing their goals. This year has been plenty quite exciting, with the introduction of the all-important Model Y and ramping vehicle production at Gigafactory Shanghai, but at what point has excitement surpassed the reality of the electrifying company? I think that this has happened long ago. While I do still believe in the company’s long-term vision, I cannot see how these goals are able to justify such an astronomical valuation. Through a brief discussion of the company’s goals, I will provide reasoning as to why I believe the company is fundamentally overvalued.

Growth Analysis

This is where Tesla shines. Objectively, Tesla is undergoing some incredible growth projects that will see rapid expansion in the company’s production capabilities. With three new facilities in different stages of construction, one in Shanghai, China, another in Berlin, Germany, and a final one in Austin, Texas, the company is making massive pushes to produce more vehicles. With new production capabilities comes greater revenue for the company, assuming they can sell their vehicles, and therefore understanding the scale of this production ramp is quite important.

Looking at Tesla’s established production facilities, located in Fremont, California and Sparks, Nevada, is a good place to begin. While I am aware of Gigafactory 2, located in Buffalo, New York, this is a facility focusing on the production of Tesla Energy products and isn’t relevant

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I tend to focus on long-term stock ideas, oftentimes rooted in tech or EVs. I have been a casual investor for years with solid returns and want to share what I have learned with others who may find value in my thoughts.

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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