Boston, MA 10/17/2013 (wallstreetpr) – Tesla Motors Inc (NASDAQ:TSLA) is the world’s biggest seller of electric cars. It posted its first quarterly profit. The company also repaid a loan nine years early. The company’s shares have soared fivefold this year. Tesla is also introducing its models in Europe and Asia. The company sells cars directly to its consumers, and all its outlets are company owned.
The current valuations suffer from the following shortcomings:
Market size and competition: Competition is increasing in the electric and hybrid car segment. Though these two segments are treated as separate segments, consumer buying patterns are similar, and the segments essentially target the same market segment. Better products are being offered by Mercedes, Toyota as well as Hyundai. The first mover benefit enjoyed by Tesla will not last long. Fuel efficiencies and pollution control of gas driven vehicles is also improving. Looking at the price front, Tesla may be left targeting the luxury segment as the middle income group cannot afford its price tag.
Production costs: Tesla spends more than 300+ man-hours to build a car as compared to 30.37 man-hours by traditional car makers. With its smaller base, the company also cannot procure material at the same costs its competitors or even traditional car makers can.
Spread: Tesla has spread itself too thinly. It is already expanding in the international market before satisfying the potential of the U.S. market. This may indicate that the company estimates that the potential of the U.S market is too small to sustain its operations. International rollout on a small production base may hurt it by increasing its costs. Company owned outlets will also contribute to the costs.
These issues should be factored by the investors. The growth story is appreciable, and the company has much technological strength that can turn the calculations upside down. There is also a downside and investors should be aware of the potential risks before investing. As it is said, “Forewarned is forearmed.”