Tesla Motors Inc (TSLA): Should You Buy Now?

Here’s my concern in a nutshell: Tesla’s market cap as of this moment is around $5.3 billion. At current levels, its stock is priced as if this were a disruptive technology firm set for hockey-stick-vertical sales growth.

But it’s not. Tesla’s an automaker, albeit an innovative, high-tech one. At a traditional automaker’s valuation of around 10 times earnings, Tesla has to make over $500 million in profit every year – or at least, have some nearish-term hope of making that much money – to justify its current stock price.

Even cutting the company some slack (it’s not really a traditional slow-growth automaker, after all, and a higher valuation would be fair) it’s hard to get anywhere near that neighborhood when you’re selling 20,000 cars a year, the number Tesla hopes to deliver in 2013.

Musk has promised high margins on the Model S. But he’ll need spectacular ones to deliver that kind of profit.

Even if Tesla’s sales start to take off, there’s a big problem
Of course, Tesla and its investors hope its sales ramp up considerably from here. But remember this: For all of Musk’s fun Silicon Valley trash talk, the technology behind the Model S really isn’t rocket science. If Tesla’s efforts show that there’s a real, substantial market for all-electric luxury cars (still a very big “if”), you can bet that competitors will start entering it.

And Tesla is surrounded by vastly better-funded competitors, companies with names like Toyota Motor Corporation (ADR) (NYSE:TM) and Ford Motor Company (NYSE:F) and Volkswagen AG (ADR) (PINK:VLKAY), all of whom have resources and scale that dwarf anything Tesla will be able to muster — likely ever.

How does Tesla get to the sales volumes needed to justify the expectations built into its stock price without seeing its lunch get eaten by the big guys?

After looking at this company for almost three years, I still don’t have a good answer to that question. If you do, buy the stock.

The article Should You Buy Tesla Motors Now? originally appeared on Fool.com is written by John Rosevear.

Fool contributor John Rosevear owns shares of Ford. Follow him on Twitter at @jrosevear. The Motley Fool recommends Ford and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors.

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