by Clement Thibault
After just under 6 years as a publicly traded entity, following its meteoric rise from a $19 IPO to its current $230 a share price tag—on Thursday, March 31, Tesla's big day may have finally arrived.
If you aren't up-to-date on the maverick automotive and energy storage company and its technologies, here's a brief recap:
Tesla (NASDAQ:TSLA) was founded in 2003 by serial entrepreneur, engineer, inventor (and some say visionary) Elon Musk, who is also the CEO of SpaceX, and a co-founder of PayPal. In the technology world, Musk is a known quantity, often cited as an example of innovative entrepreneurship, particularly within the electric car sub-sector.
He's also one of just a handful of business/new technology CEO super stars, possessing the showmanship and charisma to have become a highly visible celebrity outside his business niche...think Mark Zuckerberg and the late Steve Jobs, but with a focus on electric cars. Indeed, his personality is so distinct, it is said Iron Man star Robert Downey Jr. modeled his portrayal of Tony Stark after Musk.
Tesla specializes in electric energy storage solutions, and more prominently the design, development, manufacture and sales of electric vehicles. Tomorrow, Tesla is scheduled to introduce its newest—and by far most affordable—electric car, the Model 3, which will start at around $35,000. This is a big move for the company, which up until now has not been focused on the mid-priced automotive sector.
TSLA's first car, the Tesla Roadster, sold for around $109,000 for the base model. Its next offering, the Model S, announced in 2008 but first delivered to customers during June 2012, sold for $76,000. The public reaction to the Model S was good; It is the #2 best selling, plug-in car in history, behind the Nissan Leaf (OTC:NSANY). The Model X, introduced during February 2012, was Tesla's first crossover SUV, with a price tag $5,000 higher than the Model S.
For Tesla, the significance of tomorrow's announcement is obvious. At $35,000 the Model 3 marks Tesla's first real try at breaking into the automobile mainstream and attracting a broad—and hopefully profitable—customer base, after years of focusing exclusively on high-end cars. It remains to be seen how the general public will react to the Model 3, which is being pitched directly against the Audi A4 (OTC:VLKAY), BMW's 3 Series (DE:BMWG) and Mercedes' C-Class (OTC:DDAIY), each of which ranges from $39-$42 thousand dollars.
In contrast to the cars it manufactures, the bald truth about the automaker is actually not too sexy. Tesla remains an unproven company. It has built a name for its brand as innovative and "cool" but continues untested regarding the things that actually make companies successful—deliveries and profitability.
Thus, unfortunately, tomorrow may prove to be Tesla's 'day of reckoning' in a broader sense. Until now, Tesla's ability to deliver on the cars it sells hasn't been impressive. Although it hit the 100,000 orders milestone for the Model S in Q4 2015, actual deliveries have been far slower. Tesla's expectation was to ship between 17,000 to 19,000 vehicles in Q4 2015; The actual number was 17,400. Musk began 2015 by announcing that he expected the company to deliver around 55,000 vehicles for the full year, across all available models, but that figure was later revised to down 50,000.
Clearly, not everything is running smoothly at Tesla's car manufacturing operation. The Model 3—which will be unveiled with a prototype and for which orders will begin to be taken on Thursday—isn't expected to actually go into production until late 2017 at the earliest. Sources speculate that Model 3s won't actually reach the roads until 2019.
Tesla's newest, 'Gigafactory' factory in Nevada has also not quite lived up to the initial hype. A joint venture between Tesla and Panasonic (OTC:PCRFY), expected benefits to the region from the factory garnered $1.25 billion in tax incentives for the companies, but so far the economic impact has been lackluster. The factory has created 272 permanent jobs as of the close of 2015, well below Nevada's expectation of 500-700 positions, and also below Tesla's own projection of 300.
All of this wouldn't be as significant if Tesla wasn't trading at such a high price. Its current per-share value is based purely and entirely on future expectations since the company hasn't had a single quarter of positive earnings since its IPO. It has a consensus EPS forecast of 4.98 for the end for 2019, which means an expected Price-to-Earnings ratio of 46 – in four years, at today's prices, given that everything goes well.
To date, Tesla has doubled its revenue from $2 billion in 2013 to $4 billion in 2015, and the company now has a market cap of $30 billion.
In comparison, consider Honda Motor Company (NYSE:HMC). It has a market cap of $50 billion with annual revenues of $117 billion dollars. That’s a market cap 66% larger than TSLA's with 29 times the revenue. Tesla's growth, to date, is undoubtedly impressive, but that's not the only figure that matters.
Overall, Tesla appears to be a reasonable, innovative company. Its founder, Elon Musk is on a mission to "change the world and humanity." Eventually, he might do just that.
But for the regular investor there is much uncertainty to investing in Tesla at today's prices. Proven results are thin, and even with Musk's charisma and Tesla's sexy offerings, buyers should beware—the stock is already priced for incredible growth which it might never be able to achieve.
Thursday's Model 3 debut and future sales projections could be the catalyst for a complete reevaluation of Tesla and its capabilities. However, until that happens, we wouldn't want it in our portfolio.