Why Tesla is Overhyped – and Overvalued. Business Reaction Paper

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Post #1

Nicholas Hall

Tesla is not a stock for me. Today (30 August 2019) it opened at 229.15, nearly 70 points down from when this module’s discussion references were written (2017). Analysts are less split today than they were two years ago, and many tend to lean towards overvaluation.

The company has not executed, especially when compared to industry competitors, (Gurdus, 2019). Many analysts indicate Tesla’s valuation is too high and cite the company’s “burning through cash flow” and “balance sheet issues”. The company has not made a profit since it went public in 2010. Other issues cited by analysists are the “wild card CEO” and evidence of board members not seeking reelection. These reflect in stocks recent decline in the last year, (Kenwell, 2019).

References

Gurdus, L. (2019, May 23). Here's the level where you should start buying Tesla, accoridng to one expert. Retrieved from CNBC: https://www(dot)cnbc(dot)com/2019/05/23/heres-the-level-where-you-should-start-buying-tesla-expert.html

Kenwell, B. (2019, May 20). Is Tesla Stock Safe to Buy After a Deep Pullback? Retrieved from The Street: https://www(dot)thestreet(dot)com/investing/stocks/is-tesla-stock-safe-to-buy-after-a-deep-pullback--14965558



Post #2

Raynard Feagin



Tesla, Inc. has surpassed the market cap of GM and Ford despite earning only a fraction of their revenues and making losses. This huge market cap is based investor belief that Tesla would cause a disruption in the automobile industry similar to the impact Apple has had in consumer electronics. That expectation appears unrealistic since the Chevy Volt and the Nissan Leaf mass market electric cars are already in the market ahead of Tesla’s Model S. To scale up production of the Model S, Tesla has to invest billions of dollars which it would need to borrow at high interest rates. Even if Tesla can triple its revenues in the next 3 years, the operating margins would be under 10% and the realistic market cap would only be about half the present value.

Tesla comparison with GM and Ford (Goldstein, 2017)

The high valuation is based on investors’ belief that Tesla would cause a disruption in the personal transport market with electric vehicles, in the manner that Apple did in consumer electronics and Amazon in retailing. Tesla presently makes exquisitely engineered luxury electric cars. The Model S is aimed at the mass market but has been repeatedly delayed. The early mover advantage has been lost and the Model S faces competition from the Chevy Volt and the Nissan Leaf (Goldfarb, 2017).

Goldfarb, B., (2017). Why Tesla is Overhyped – and Overvalued. Vox. Retrieved from https://www(dot)vox(dot)com/the-big-idea/2017/6/26/15872468/tesla-gm-ford-valuation-justifying-disruption

Goldstein, D., (2017). Tesla’s Rising Market Capitalization. Mekko Graphics. Retrieved from https://www(dot)mekkographics(dot)com/teslas-rising-market-capitalization/