April 4th Update: Tesla Model 3 Pre-order Financing Creates A Bubble
Tesla Motors, Inc. (NASDAQ: TSLA) builds cars that run on electricity and stocks that run on hype. Not that hype and speculation should be completely shunned. It's just that a portfolio can only take so much. If share ownership in Tesla Motors, Inc. included a minority interest in Space X, then I'd be excited.
Of the vehicle manufacturers, Tesla Motors, Inc. is one of the leaders in Research and Development (R&D) spending. In 2015 the company spent $718 million in R&D, which was 78% of their gross profit. However, it is wrong to assume this generated an elite Return on Research Capital (RORC).
Fanyboys of Tesla Motors, Inc. are more drawn to the growth model and the belief the world will go green. In 2015, revenue had more than doubled since $2 billion in 2013.
A look at some comparable companies, Honda Motor Co., Ltd. (NYSE: HMC) and Tata Motors Limited (NYSE: TTM), shows that R&D can reach greater returns. Yet the RORC metric makes assumptions that are less likely to be literal in these grand figures.
For every dollar of R&D spent by Tesla in 2014 they made $8.71 in gross revenue for 2015. Honda Motor Company more than doubled this output and Tata Motors had the greatest margin of $102.34 per dollar spent.
Saturday Night RORC and other stock analysis by Travis Brown can be viewed at Seeking Alpha. Click the follow button at the top of the page to receive alerts to the author's new work.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.