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Tesla


News Monday that Tesla Inc. (NASDAQ:TSLAD) had overtaken Ford Motor Co. (NYSE:FC) as the second largest American automaker by stock market value was met with nothing less than shock.

Shares of the Silicon Valley electric carmaker ended up 7.27% at $298.52, giving the company a $48.63 billion market cap compared to Ford’s $45.47 billion value. General Motors Co. (NYSE:GMF) retained the lead with A $51.19 billion market cap.

Related: THE CURRENT STATE OF AUTONOMOUS VEHICLES

Beating The Odds

Tesla continues to defy Wall Street and industry convention by achieving its value while selling a relatively modest number of cars. In 2016, for example, Tesla sold 76,230 cars. Ford sold 6.6 million and GM sold 10 million.

Price per sales as of December 2016 for Tesla was $4.40 versus GM at $0.33 and Ford at $0.32. There is a growing belief that electric motors will replace internal combustion engines in the future. This has led Tesla founder and company CEO, Elon Musk, to say Tesla isn’t overvalued since its valuation reflects future potential. Musk said, “A stock price represents risk-adjusted future cash flows.”

On Track And On Time

Musk has a goal of selling 50,000 units by the end of June. In the first 3 months of this year the company shipped 25,000 cars. This puts Tesla on track to meet or beat Musk’s goal. This is good news for Tesla and for shareholders.

The real test is yet to come as production of the company’s widely publicized Model 3 “every man” car nears. The Model 3 will be Tesla’s first high-volume, lower priced vehicle and stands to go a long way toward putting significantly more electric cars on the road.

There Are Bears

Despite the rise in market cap and positive news about the potential of the upcoming Model 3, Tesla has detractors. CFRA’s Efraim Levy seems to have one reason for maintaining a bearish view. While TSLA did deliver more than 25,000 vehicles (Model S and Model X combined) in Q1, Levy is bothered by Tesla’s rich valuation. Currently the stock trades at 112 times forward 12 month earnings.

Others hedge bets by taking a short-term bull position and long-term bear outlook. Barclays Capital senior analyst Brian Johnson called Tesla a “sell.” Johnson also said there was a window for potential profits in the near future. "Short term, we could see some upside with this … slew of product announcements coming over the next several weeks," he said.

Johnson’s rating on the stock is “underweight” with a $165 price target on the stock which is currently trading for $298.52.

Related: ALPHABET DRIVERLESS CARS TO SOON START EARNING REVENUE

Bulls Rush In

Morgan Stanley analyst, Adam Jonas, on the other hand, sees the Model 3 as a modestly-priced automobile with hardware and software that could make it 10 times safer than the average car on the road. This is something Jonas sees as having enormous value moving forward.

Jonas sees the safety factor as so important it could lead to the obsolescence of used cars and even change how the auto insurance industry functions. Jonas has the equivalent of a "buy" rating on Tesla with a $305 price target.



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