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Investors fear that the electric wonder car of Tesla Motors may be puttering out as the company suffered a huge financial loss in the month of October. According to Bloomberg, investors fear that the stock price “outpaced the growth prospects,” for the electric car maker.
The stock price of a company reflects several things; not just growth and future revenues, but also the returns on R&D and possible acquisitions and patents, all of those things are weighed into how analysts perceive the valuation of the stock. A critical component is also how the stock will independently perform in the market against competitors. Tesla Motors had a 17 percent dip in October- their first decline in 10 months and their largest in 3 years. The market cap for the California electric car manufacturer is down by 4.1 billion, to 19.4 from 23.5 billion dollars.
Investors have valued the company at more than 260 times earnings- meaning that the hope of future revenues isn’t the most heavily weighted opportunity that people are inclined to exchange their cash for equity shares for.
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Large investors are concerned with growth potential in Europe and Asia; they are also hoping for increased production. They look to see an electric SUV coming down the pipelines- all while “avoiding defects and delays that anger customers and could harm its reputation.”
Ben Kallo, equity analyst for Robert W. Baird & Co. only last month changed his outlook. “The stock is priced to perfection right now.” Kallo lowered his rating to neutral from outperform, according to Bloomberg. Investors are also skeptical about two fires that happened with the cars; after the reports the stock price dipped by 10 percent. Lastly, while the company benefits from zero-emission vehicle tax credits in California that lifted its results at the years end- regulators are likely going to revise those laws- and Tesla would see a 40 percent reduction in those tax credits from 2015. Tesla’s stores are expanding and their charging networks are seeing growth. The company has seen “fourfold growth this year.” So it’s definitely a mixed story for the car maker.
James Albertine, an equity analyst at Stifel Equity Research gives Tesla a ‘hold’ but comments, “There’s perhaps a growing view that significant cash earn in 2013 is likely to turn to significant burn in 2014.” Tesla cannot rely on generous tax credits to bump its results and revenues. It has to rely on honest growth at home and abroad if it’s going to keep afloat and keep investor sentiments high.
Image Credit: thewhartonjournal & hybridtechcar.com
