Question

Many analysts consider Tesla to be a market disrupter. Although its vehicles sell for $100,000 or more, Tesla vehicles are well designed and 100 percent electric powered. This has caused investors to rapidly purchase Tesla stock.

However, it is widely believed that Tesla stock is overvalued. It has a $25 million market cap but has yet to post a profit. China, a market predicted to equal the U.S. market in 2015, has one-tenth the sales of the United States. This has caused Tesla’s stock to fluctuate widely.

Supporters believe Tesla will pay off big and have scrambled to purchase stock when Tesla shares have plummeted. Lower gas prices have lowered Tesla’s value, but many investors are not concerned because the customer base for Tesla’s premium product will not likely be concerned with gas prices. Support for green vehicles and technology is growing worldwide, and Tesla develops a product that is admired for its quality.

On the other hand, UBS placed a “sell” rating on Tesla stock because it thinks that the challenges ahead will test Tesla significantly. It anticipates that costs will remain high for Tesla, affecting the bottom line. Also, it feels there will not be enough demand to meet Tesla’s projections for its storage batteries. The debate over whether Tesla will become a blockbuster stock continues as consumer demand changes and competitors enter the market

1:      How risky does Tesla think their business is?

2:    What potential problems might owners experience if they purchase a Model 3 that was rushed through production to meet a production goal? If a massive recall should occur, what impact might that have on the Tesla brand?

3:    What are some of the argument’s investors might have for supporting Tesla? For selling Tesla stock?

Answer 1

Musk has decided that Tesla must notch a profit in the second half of 2018. The last time the company was in the black was in the third quarter of 2016.

Tesla, which currently has a market cap of about $50 billion, has taken some heat lately from analysts who believe the company is overvalued. Some, like prominent Greenlight Capital investor David Einhorn, have gone so far as to predict that we're in a Tesla bubble.

The next few months will go a long way to determining whether those things are true, or whether the company is worthy of the hype. Tesla currently manufactures about 20,000 cars per quarter, and it hopes to produce 500,000 in 2018.