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Tesla Motors (TSLA) is an undeniably innovative company, and they’re quite successful to boot. The electric carmaker sells as many Model S’ as they can make. They are now consistently profitable. They have second and third generation products in the pipeline. And on Feb 25, the company received a major vote of confidence from Morgan Stanley, with the Tesla analyst at the vaunted firm ratcheting Tesla’s price target from $153 to $320 a share. Tesla shot up over 20 percent on the day.
Tesla’s valuation now just absolutely screams “bubble.” Forget the profit-to-earnings ratio of more than 1,200. Just look at the market cap alone. Tesla is now worth $30.4 billion — a company that sold all of 6,900 cars last year.
But it's not a bubble if it never pops. This isn’t the first, second, or fifth time Tesla’s rapid rise has been questioned. At this point, investors just need to accept that Tesla will continue to run up the stock market as long as everyone continues to believe in them, and the projections keep getting rosier and more fantastic.
Electric Carmaker Gets a Charge from Morgan Stanley
Tesla has long been lauded for being on the cutting edge of clean automobile technology. But what impressed Morgan Stanley wasn’t their commitment to innovative green energy, but their vertical integration.
Morgan Stanley’s Tesla analyst, Adam Jonas, cited the fact that Tesla has moved forward with plans to establish factories to manufacture batteries for their car, meaning the company will produce both the automobiles themselves and the energy required to power them.
Vertical integration bodes well for Tesla’s future, to be sure. But the main sell on Tesla is promises of a future with Tesla “at pole position.” Their rise has less to do with battery factories and more to do with an imagined future of the automobile industry absolutely dominated by Tesla’s innovations.
Projections: The Real Renewable Resource
Tesla continues to make fantastic promises. To be sure, they’ve fulfilled a lot of them. Like their sales numbers for 2013 and the early payback of their sizable Department of Energy loan. This track record has investors and the analysts believing that Tesla will not only meet their fantastic projections, but exceed them.
For Jonas, real excitement also stems from the company’s detremination to get into car automation, or self-driving cars. Tesla CEO Elon Musk has admitted that such technology is years away. But the excitement and fantastic visions are more than enough to propel Tesla’s shares. More so, Tesla’s stock will continue performing in the exact opposite of that of Apple Inc. (AAPL) . That is: when considering valuation, the tech market considers ambitious projects first, projected future sales second, and actual current profits last.
Speaking of ambitious projections, Tesla has said that in fifteen years, there will be 7 million of their cars on the road. That would more than justify Tesla’s current $30.4 billion value. But in 15 years, Tesla will most likely be worth something far different. After all, who knows what they’ll be projecting next.
After notching a 20 percent rise on the day Tesla corrected slightly to finish Feb 25 trading up 13.94 percent to hit exactly $248 a share.