Valuation the cold hard facts
Tesla’s track record isn’t a bed of roses–it has been running into production problems with its battery supplier, and is still losing money on an annual basis. In 2011 Tesla lost $2.53 per share, up from a $-12.46 loss in 2008. Tesla continues to invest millions in R&D in search for a long term payoff–$204 million as of their 3Q filing. When comparing Tesla to its competitors, Tesla only sells a fraction of the cars that the other US majors sell. This puts pressure on Tesla as other companies like GM can use other profitable divisions to prop up their new ventures into electric vehicles. Tesla is on track to achieving its goal of producing 20,000 cars per year with a weekly production rate of 400 cars. Tesla has a lot of room to grow here, as its main constraint is currently in its battery pack suppliers.
As the market for all electric vehicles grows from its .3 percent market share into a main stream technology, Tesla will be the purest play in this industry. This past December Tesla declared its first positive cash flow month via a Tweet from CEO Elon Musk himself. Now we can’t take that as an official SEC filing, but it is certainly a step in the right direction.
Another interesting fact about Tesla is that it currently has 36.9% of its outstanding shares sold short, among the highest on the NASDAQ. That means that one in three shares is borrowed against and any sort of rally could lead to a huge short squeeze. A short squeeze is when short sellers are forced to buy shares they borrowed to close out their positions. There is no guarantee that Tesla’s stock will go up, but if it does, it will create a short squeeze of major proportions.
Foolish Bottom Line
Tesla is a dual play on the electric car technology shift. It licenses out its technology, as well as operates as an auto manufacturer. Traditional hybrids like the Prius or Volt are vehicles that compromise performance for practicality, whereas Tesla’s are electrified luxury performance vehicles. Electric motors are 90% efficient in converting power in into locomotion, whereas the most efficient internal combustion engines are closing in on 35% efficiency. Tesla’s bet on efficiency coupled with luxury could pay off big once the momentum behind electric cars and their efficiency becomes mainstream. As the market for these vehicles expands, we should see Tesla’s stock take off with the potential of rocket fuel being added if there is a short squeeze. Tesla is putting the pedal to the metal when it comes to the adoption of electric powered cars.
The article Tesla Motors the Prodigy Child originally appeared on Fool.com and is written by Wes Patoka.
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