From the chart alone, it looks like there could be a period of stagnation. While it’s true that Tesla (TSLA) may be on the way to becoming the world’s most dominant car company, investors that overpay now will be in for a bumpy ride on the way, and long-term investors may not see market beating returns.
Tesla doesn’t produce a profit and spends close to $2 billion on CapEx, the money spent acquiring or maintaining fixed assets, such as land, buildings, and equipment, resulting in negative cash flow and an EPS number that has gone even more negative since 2013. Analysts have been wondering what would be the final configuration and pricing of the Model 3. The Standard configuration lists for $35,000 (before credits) has a 220-mile range, makes 0-60 in 5.6 seconds and has a top speed of 130 mph. The Long Range configuration prices at $44,000 has a 310-mile range, makes 0-60 in 5.1 seconds, and has a top speed of 140 mph.
Applaud Elon Musks risk taking and innovative execution, but put this one in the “too hard” category. The stock has been on an incredible run, moving up over 12 fold in the last five years alone. Now with a $55+ billion price tag on it, Tesla is under pressure to start producing profit. Currently, it generates $8 billion in sales with an outlook for $18 billion in 2018 thanks to new Model 3. However, the estimates are all over the board for earnings and even with the probability of finally reaching cash-flow positive, the next 10 to 20 years of earnings potential are already priced into the stock at this point.
Plus, it’s not the only car on the road. It’s not even the most popular. And, unlike Google with search or Facebook with social, companies like Mercedes, BMW, Ford, GM, etc. all can produce solid alternatives in the auto industry.
Bottom Line: Tesla will likely remain a money loser for a while as it spends more billions to ramp up its production.