What Tesla Motors Inc (TSLA) Bulls Can’t Ignore

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If Tesla’s going to justify its $13.6 billion market cap (about 28% of General Motors Company (NYSE:GM)’s ) it’s going to have to make mass market cars eventually.

The Leaf is an affordable, fully electric car (starting at just over $20,000) but Nissan sold only around 7,000 Leafs in May. Perhaps that’s because the car gets only about 75 miles per charge.

Tesla Motors Inc (NASDAQ:TSLA) has plans for a fast-charging network and battery swap stations. That would go a long way towards curing Americans of any range anxiety that they might have, but Tesla still has to execute, and it will be interesting to see how long it takes them to cover the country (if they ever do).

3) Tesla’s valuation is absurd

Lastly, Tesla Motors Inc (NASDAQ:TSLA) is just about the furthest thing possible from a value stock. It has no official price-to-earnings ratio (it only recently became a profitable company last quarter) let alone a dividend. Even based on analyst projections, Tesla’s forward PE ratio of 137 is roughly 14 times GM’s.

Perhaps GM is undervalued — the king of value investing, Warren Buffett himself, owns 25 million shares, roughly 1% of Berkshire Hathaway’s portfolio. And it’s an investment that’s paid off.

While GM’s run hasn’t been as impressive as Tesla’s, it is up about 70% from around the time Berkshire bought shares. Hedge fund manager David Einhorn has also been bullish on GM, arguing last October that it was undervalued largely due to investors’ inability to forget the past.

GM’s stock is more boring than Tesla Motors Inc (NASDAQ:TSLA)’s, but if investors are looking to play autos, perhaps following Buffett and Einhorn into GM is a better idea than betting on an excessively valued Tesla.

Investing in Tesla

If you’re looking at Tesla as a very long-term, speculative investment, then these factors are probably not that important. Certainly, Tesla Motors Inc (NASDAQ:TSLA) presents the possibility of a revolutionary growth company — the other auto stocks, not so much.

But investors jumping into Tesla now should be aware that the stock could be in for a correction at some point in the near future. Stocks that rally rapidly based on short squeezes oftentimes have an equally impressive collapse.

Moreover, Tesla still has to overcome some significant challenges. Ultimately, it must produce a mass market car that people want to buy if it is to justify its current valuation.

Sam Mattera is long Tesla Motors Inc (NASDAQ:TSLA) puts dated September. The Motley Fool recommends General Motors Company (NYSE:GM) and Tesla Motors (NASDAQ:TSLA) . The Motley Fool owns shares of Tesla Motors Inc (NASDAQ:TSLA).

The article 3 Bear Arguments Tesla Bulls Can’t Ignore originally appeared on Fool.com.

Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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