1. The Forbes article and Smarter Analyst article both agree in the inherit volatility of the Tesla stock price. Also, both articles agree on the cause of the volatility which is the uncertainty of the company. There are many head winds that face Tesla such as domestic competition and foreign car companies enter the market. The major factor mention in each article is total market share of EV cars compared to the rest of the market. According to the articles EV cars make up a tiny percentage of the cars on the road and the current sales volume hardly represents a permeant and momentous shift in the way people of buying cars. According to the Smarter Analyst article people are in love with they story of Elon Musk and turning the car industry upside. The truth of the matter is Elon has not turned the car industry upside down. In fact he hasn’t even really made a dent. However the potential is there for him to do so, with mounting head winds from better capitalized firms, with only being profitable 2 quarters Tesla continues to ride on the hopes of dreamers. The dreamers are able to justify the high valuation because they say look at what he can do, look at the potential here. As a commercial banker we never put any value on hopes and dreams only on what are the past numbers telling us or how is machine X going to increase efficiencies moving forward.
That being said I believe Tesla is tremendously over valued in a market with extremely high entries to barrier with a very competitive market. There are also challenges as Tesla brings the Model 3 to market and according to Will Ashworth’s articles Tesla will burn around 2 billion in cash to make this happen. According to Ashworth, and I am in agreement, valuation should be base upon profits not devoted followers blinding trusting in Musk.
Ashworth, Will. (August 2, 2017). Is Tesla Inc (TSLA) Stock Overvalued? David Einhorn Thinks So. Retrieved from https://investorplace.com/2017/08/tesla-inc-tsla-stock-overvalued-david-einhorn/#.WcUPO7pFwqQ
Tesla is most certainly a company after my own heart—one that wants to change the status quo. When looking at Telse Motors, we have to take into consideration the man behind the company.
Tesla’s founder and CEO, Elon Musk, co-founder of PayPal, was a millionaire by 28 from the $1.2 Billion sale of PayPal to e-Bay and drums up quite a bit of energy (no pun intended). According to Forbes Magazine (Melby, 2012) Musk is valued over $2 Billion. His portfolio host electric cars, solar power and space rockets. Musk used much of his own money to stand up Telsa Motors, Solar City and Space X. With his look to aiding the evolution of the future, Musk has a following of likeminded people that are willing to invest in the company. Additionally, Space X has numerous government contracts developing reusable rockets. Additionally, Britain has already pledged to ban all diesel and gasoline powered cars by 2040 (Castle, 2014), that’s a mere 23 years away.
With that said, down to the question, the $300.00 price tag for the stock, may seem overvalued due to the lack of large profits expected of a company who’s stock is at this price point. However, many choose to invest as they feel it will be an investment in the future. Right now Tesla is on the leading edge of the electric car industry by developing long lasting batteries for longer range driving (245 miles) and over 5000 charging stations along major routes of travel. Other companies simply cannot compete with this. I would invest in Tesla stock.
Castle, S. (July 27, 2017) To Fight Pollution, Britain Will Ban Sales of New Diesel and Gas Cars by 2040. Retrieved September 21, 2017, fromhttps://www.nytimes.com/2017/07/26/world/europe/uk-diesel-petrol-emissions.html?mcubz=1
Melby, C. (Mar 12, 2012). How Elon Musk Became A Billionaire Twice Over. Retrieved September 21, 2017 from https://www.forbes.com/sites/calebmelby/2012/03/12/how-elon-musk-became-a-billionaire-twice-over/#30fe620d1c88
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