Tesla Motors Inc (TSLA)’s Ridiculous Valuation Explained in 2 Figures

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Tesla Motors Inc (TSLA)There really is no way to deny it anymore: Elon Musk is a genius. The man has brought us the first mass-produced electric vehicle that’s profitable, and he’s also on the cusp of revolutionizing solar energy in the consumer and business segment through his solar panel leasing company SolarCity Corp (NASDAQ:SCTY). But just because he’s a front-runner for CEO of the decade doesn’t mean I have to like his pride-and-joy EV-producing company, Tesla Motors Inc (NASDAQ:TSLA) .

I freely admit my biases toward Tesla. In fact, I’ll state upfront that last Thursday I went short shares of Tesla at $124.75 per share. Even before I share with you the reasoning that put me over the top and caused me to pull the trigger on this trade, let me expound on some of the reasons that have caused me to be leery about Tesla Motors Inc (NASDAQ:TSLA) in the first place.

Source: OnInnovation, Flickr.

3 big reasons to avoid Tesla
Reason No. 1 is trust. Elon Musk has certainly delivered on his promise to bring mass-produced electric vehicles to America, but there have been a considerable number of broken promises along the way. Although Tesla Motors Inc (NASDAQ:TSLA) has managed to hit or beat production targets in two straight quarters, over the preceding two years there were far more missed targets than made. In fact, in March, Tesla announced that it was pushing back production of its Model X all-electric SUV to late 2014 from its expected production date of late 2013. I consider this just another in a series of pushbacks for Tesla Motors Inc (NASDAQ:TSLA), and regularly question whether it can meet its self-imposed deadlines.

The second reason I’ve been skittish about Tesla is EV infrastructure. Now, don’t think for a moment that I’m completely biased against all EVs. I can definitely see the environmental advantages of EVs with regard to the fact that they produce no emissions. However, as a realist, I also understand that it’s going to take years and millions upon millions of dollars to get the proper infrastructure in place. There are quite a few reasons to buy a Model S electric vehicles and a laundry list that’s 10 times as long as to why not to. One reason on that laundry list is the lack of appropriate infrastructure (i.e., charging stations) to make long-distance travel feasible.

The third factor that’s always made me skeptical of Tesla Motors Inc (NASDAQ:TSLA) relates to whether it could expand without any hiccups. We’ve already established that Tesla Motors Inc (NASDAQ:TSLA) has a sketchy history at best of delivering on its promises, so when Elon Musk noted this week that he anticipates car production to jump from 400 to 800 EVs by late 2014, my skepticism alarm went off. If history is any indication, this probably isn’t going to occur into well into 2015.

These are just some of the factors that caused me to issue an underperform CAPScall on Tesla Motors Inc (NASDAQ:TSLA) a long time ago.

Well, guess what? That call went horribly wrong! Tesla shares quadrupled in just a matter of months following the company’s first-ever quarterly profit and the complete prepayment of its $465 million loan from the U.S. Department of Energy. It didn’t matter that the valuation didn’t make sense, or that Tesla Motors Inc (NASDAQ:TSLA) had a history of missing its production targets — simply showing that EVs could be profitably produced was enough to send shares rocketing higher and shake the foundation from under General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F)‘s feet.

Two figures that make Tesla look terrible
Then, last week, out of a combination of a long-term dislike for Tesla’s valuation and a love for creating my own indexes, I decided to work out a comparative index that would look at Tesla’s value as compared with its production and profitability, and use those figures to compare Tesla against General Motors and Ford Motor Company (NYSE:F), the two U.S. juggernauts, as well as globally dominant brands Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (NYSE:HMC) . The results were nothing short of laughable.

First we’ll simply look at current market value as of yesterday’s close versus 2012′s production. In the case of Tesla Motors Inc (NASDAQ:TSLA) I gave the company the benefit of the doubt and used this year’s projection from Elon Musk of 21,000 units. Here’s how the results stacked up:

Company Market Cap 2012 Production Value/Car
General Motors $49.73 billion 9.288 million $5,354
Ford $65.26 billion 5.708 million $11,433
Toyota $204.16 billion 9.692 million $21,065
Honda $68.61 billion 3.137 million $21,871
Tesla $12.6 billion 21,000* $600,000

Sources: Yahoo! Finance, annual reports, author’s calculations. Tesla’s production based on 2013 estimates.

I wish I could say this was some sick and twisted April Fool’s joke, but it’s not.

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