Elon Musk Recharges His Tesla Shares

Billionaire Elon Musk’s trust purchased about 35,400 shares of Tesla Motors Inc (NASDAQ:TSLA) on October 3rd at an average price of $28.25. Tesla, where Musk serves as CEO, is up 50% from its IPO price from the summer of 2010 as the company has shown some success in developing all-electric cars for the public. The news more recently has not been particularly good- late last month the firm cut its Q3 sales estimates for its Model S sedan by about 40% (read more about Tesla’s announcement)- but Musk appears somewhat confident that the company is a good long-term growth stock. Insider purchases tend to be bullish signs (see our discussion of studies on insider trading), with the general explanation being that insiders must be very bullish on the company in order to buy more of the stock and forgo the benefits of diversification. Hedge funds generally weren’t very optimistic about Tesla in the second quarter, with one exception: Eric Bannasch’s Cadian Capital added shares for a total of 3.3 million, which at that time gave the fund a position worth over $100 million (find more stock picks from Cadian Capital).

Tesla Motors Inc (TSLA) Gets Five-Star Rating: Should Ford Motor Company (F), Other Competitors Worry?

Musk’s buy is likely a welcome sign for investors, who did not get a good second quarter out of Tesla Motors Inc. Revenue was down 54% compared to the second quarter of 2011, bringing the company’s sales performance for the first half of the year to 47% below last year’s levels. Tesla wasn’t even profitable at that time, and so net losses are about twice as large as they were in the first half of 2011. Roughly half of this gap is due to increased spending on R&D, while about a quarter was due to lower operating profit (the company was able to cut some of its costs to partly make up for lower revenue).

Tesla Motors Inc began selling the Model S in June in addition to its premium Roadster product, with pricing starting at around $60,000 (before any federal incentives for purchasing an electric car). The company still expects to move 20,000 units in 2013, but will have to expand its marketing plans in order to do so and still needs to upgrade its production facilities. We’ve mentioned its current unprofitability; the sell-side actually expects positive earnings per share next year, but the P/E multiple is still very high at 77. It’s also possible that another automaker seeking stronger positioning in the electric market will look at acquiring Tesla, but for the time being we’d prefer to evaluate Tesla’s value as a stand-alone business.

Automakers, however, are still generally focused on gas-powered cars. Allowing for that, the Chevrolet Volt, Toyota Prius, and Honda Fit models make General Motors Company (NYSE:GM), Toyota Motor Corporation (NYSE:TM), and Honda Motor Co Ltd (NYSE:HMC) competitors with Tesla. Ford Motor Company (NYSE:F) also has an all-electric version of its Focus model. These companies are all profitable, and there is a stark departure in valuation for their more established businesses: Toyota carries the highest forward P/E multiple of the lot, at 10. Honda trades at 7 times forward earnings estimates, while GM and Ford’s multiples are 6 and 7, respectively. Tesla has an attractive premium brand, but its struggles are about even in percentage terms with Ford and GM. Its 54% increase in losses last quarter versus a year earlier is well in line with Ford’s 57% decline and GM’s 38% decrease in those companies’ earnings over the same period. Toyota and Honda, meanwhile, are prospering with their revenues and net income up (though the growth rates are skewed very high because of the Fukushima incident’s effects on production last year). We’d also mention that these companies are generating cash in addition to earnings, to the point where all except GM pay a dividend (with Honda’s, at a 3.2% yield, actually looking quite attractive).

Tesla’s poor business leaves two arguments for the bull case. We can’t really evaluate the possibility of an acquisition, and auto companies seem as satisfied with their all-electric offerings as they could be. GM, for example, seems to believe that the Volt is more valuable as a marketing expense- an improvement in the company’s brand that encourages purchases of other models- than as a product itself. That leaves the growth argument, and with more established companies in the market (not to mention that growth has been negative recently) we don’t think it is a buy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!