Shares of stock in Tesla Motors are selling for more than $160. Some people think it is overvalued by at least $100 a share. Others think such high prices are appropriate because Tesla is more a tech company than an auto manufacturer.
The Tesla Model S, available over the Internet for a mere $69,500.
The Antiplanner thinks both views are correct. Tesla’s shares are overpriced because they are priced like a tech company–one that is likely to go bankrupt soon, or at least unlikely to ever make any money.
I have nothing against electric cars if you are willing to pay for one. And I have nothing against Elon Musk dumping his money into an electric car company if he wants to. But other investors should be just as skeptical of Tesla’s profitability claims as environmentalists should be skeptical of Tesla’s green claims.
Investors are excited because Tesla reported two consecutive quarters of profits–although the $26 million second-quarter profit doesn’t count $57 million in supposedly “unusual and one-time costs” that reduced the actual profit to minus $31 million.
Supposedly these profits are driven by surging sales, which–at least in California–are supposed to be greater than sales of Porsche, Jaguar, Volvo, Land Rover, Lincoln, Fiat, Buick, and Mitsubishi. Maybe that’s true in California, but nationally Tesla’s sales are infinitesimal compared with those of most other manufacturers.
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In the first half of 2013, Tesla sold about 10,000 cars. But in August alone carbuyers purchased more than that many of each of at least 20 different other models of cars. Compared with 16 million auto and light trucks that automakers expect to sell in the U.S. in 2013, Tesla’s 21,000 are little more than one-hundredth of a percent.
The profits and revenues per car are also questionable. Tesla’s base model S sells for $69,500. I am sure there are lots of options people can add to boost the price, but Tesla’s first-quarter sales of 4,900 cars supposedly earned $562 million, or close to $115,000 per car. Second-quarter sales of 5,150 cars earned only $405 million, or less than $79,000 per car.
Buyers didn’t really pay Tesla $115,000 per car in the first quarter and probably didn’t pay $79,000 per car in the second quarter. Instead, Tesla earns “zero-emissions vehicle” credits on cars sold in California, which it can sell to other auto makers. These and various other subsidies and tax credits significantly boosted Tesla’s revenues.
Tesla repaid a federal loan of $465 million last May, which some people think it had to do to avoid defaulting on some of the loan’s specific requirements. In any case, it certainly didn’t repay the loan out of its $15 million first-quarter profits. Tesla currently has about $750 million in the bank, but that’s money that Musk and other investors have given the company–nothing like Apple’s $146.6 billion cash hoard, virtually all of which came from actually selling products that people want, not from investors.
Tesla receives most of its government support because it is green. But are Tesla cars really that clean? Of course not; the electricity they require has to come from somewhere, and that mostly means from power plants that burn fossil fuels. One analyst estimates that a Tesla effectively emits about as much greenhouse gases as a Toyota Highlander, and its emissions of other pollutants are far worse. This is based on national averages; in California Tesla would appear to do a little better as California gets more of its electricity from hydro and other renewables. But, according to the Department of Energy’s State Electricity Profiles, even California now gets more than 60 percent of its electricity from natural gas.
On top of this are the significant energy and environmental costs that come from manufacturing electric cars. The point is that federal and state officials who are giving Tesla valuable credits of various sorts are likely to change their minds when they realize they aren’t getting what they are paying for.
Sad to say, Tesla reminds me of the Tucker Car Company. It promised to sell cars for under $2,500, but the actual price turned out to be $4,000. In the same way, Tesla promised its Tesla S would sell for under $57,500; the actual price today is $12,000 more. Tucker founder Preston Tucker was accused, but never convicted, of stock fraud; I can’t help but thinking that Elon Musk is making some similarly questionable claims. At least Musk has managed to sell more than 10,000 cars, which not only beats Tucker’s 50 but Delorean’s 9,000.
” The point is that federal and state officials who are giving Tesla valuable credits of various sorts are likely to change their minds when they realize they aren’t getting what they are paying for.”
Oh, you know WAY better than that.
Tesla is unlikely to make money from selling cars but might from selling their technology. Eventually the world will have to come up with a way of producing power and being able to drive without producing CO2. So far the only feasible technology for driving is using batteries charged with some form of non CO2 producing source. The first firm that comes up with realistic battery replacements for liquid fuels may have very valuable technology to sell.
A note on California’s renewable energy: All existing renewable energy is already used. Any additional electricity to charge car batteries is coming from the additional power sources that produce CO2, so there is no net gain yet. It will take many years and a great deal of technology shift to be able to generate and store electricity from renewable energy. However, the battery technology Tesla is using may be the path forward. We don’t know yet where technology will lead.
Stop producing CO2? Why? Warming has paused for the last 15 years, and the sun is very quiet, perhaps even on the cusp of another Maunder Minimum, which coincided with the Little Ice Age.
Tesla is to electric cars what Alta Vista was to search engines.
Before replying to this post I suggest that read Lomborg’s book “Cool It” or watch the movie “Cool It” (available on instant plan on Netflix). Lomborg is continually miss-quoted as saying CO2 buildup and climate change is not a problem when in fact he considers it a very serous problem that we are doing nothing about. He advocates; stopping claiming that projects that are not cost effective at reducing CO2 build up should be halted; spending on research to produce power without CO2 should be increased 10 fold; some money should be spent in developing countries to counter the adverse effects on those people; and some money should be spent on research to use aerosols in the atmosphere to block sunlight and cool the earth if this is necessary way in the future.
Another excellent book that describes the problems and methods of calculation is “Sustainable Energy Without the Hot Air” downloadable free as PDF files, use title search words. This is from the British perspective but nervelessness goes into all the serious calculations that have to be done to actually reduce CO2 production and how. No technology exists to do so yet. However, electricity storage from renewables might, time will tell. Hence Tesla’s technology may be valuable.
The reason that CO2 have to eventually be reduced is that there are now no significant number of climate scientists who’s research shows that the Earth can take 2, 3, 4 times the recent historical norm of about 300 ppm. Go into any of the scientific groups I work within,, such as American Geophysical Union, American Chemical Society, etc. and this is now considered fact. Anyone who goes into these groups claiming that there is no limit that the CO2 concentration that the atmosphere can take will be ignored as not knowing what they are talking about. These climate change deniers are now having to fall back on work by literally a handful of climate scientists left who claim there is no problem. These deniers are now so in the scientific minority they are falling into the category of those who claimed that smoking did not cause cancer, etc.
The problem is that most climate scientists do not have a good idea of cost benefit analysis and believe claims that new rail projects are cost effective ways of reducing CO2. Even if one does not consider CO2 buildup a problem trying to halt poor planning or rail projects by claiming CO2 is not a problem will be ignored. Point out that such projects are useless and show an understanding of why might stop these projects.
I think it is interesting to compare Tesla to Amazon in the late 1990s, when Amazon had around a $20 billion market cap as Tesla does now.
* Both companies have very charismatic, high profile CEOs (even compared to other tech CEOs), noted for their weird laughs.
* Both companies received a huge, arguably unfair government subsidy relative to their more traditional competitors—in Amazon’s case, the fact that it was not required to collect state sales or use taxes but its competitors were. In Amazon’s case, this went on for more than fifteen years before government finally evened the playing field.
* Both companies are great at pleasing the customer… Consider all Tesla’s Car of the Year awards and Amazon’s general stellar reputation with customers. This of course creates fans.
* Both companies’ stocks were grossly overvalued compared to current sales or profitability, and clearly valued based on a “story” or dream of the future, or simply in a bubble.
* Skeptics see a bubbly stock and an iffy business model and think they can make money by selling the stock short. Currently 32% of Tesla’s float is sold short! In fact, the short sellers are in a lemming rush of their own and only contributing to the bubble. When the stock jumps based on some positive story, some of the huge number of short sellers are forced to cover and only contribute to sending the stock skyward, which induces more short sellers to cover and so on.
Obviously the analogy is not perfect, the companies are in different businesses. But Amazon was given an amazing amount of time and leeway, by government, by investors, until they eventually found a successful business model. Tesla may get a similar amount of opportunity. Amazon the stock almost imploded in 2002 (although the brand and website would probably have survived in some form), but later shot back up to huge gains.
Paul mentions: ‘the recent historical norm of about 300 ppm”.
When it comes to CO2, climate change and the like, words like “recent” and “historical norm” can’t be used together.
In terms of the Earth’s natural history, “recent” includes the last ice age of 10,000+ years ago. “Historical norms”–measured by whom, for what period? Whatever fits your argument/
Le’s return the EARTH to its glory days of perfect climate…UHHHH, THE 1800’S OR 900 AD, OR 2000 BC or……..
They all had different “climates” and different CO2 levels. When it comes to the Earth’s history and climates, there is no “historical norm”, just a series of time-periods where the climate is different than prior or future times.
Tesla is very successful now, worth more than any other automaker.
pfosse,
You are right; I was pretty pessimistic about Tesla in 2013. However, “worth more than any other automaker” is based on market valuation, which as I point out in the above post isn’t always accurate. Out of 15 auto manufacturers that sell in the U.S., Tesla sold the 12th-most number of cars in 2020, dropping to 13th in 2021. Ford’s profits in 2021 were about four times greater than Tesla’s despite losing sales due to the chip shortage. Tesla may survive in the long run but its market valuation will trend towards that of similarly sized auto companies such as Mazda and Volvo.