Despite Its Recent Growth, Tesla Is Still Investable
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Tesla Motors (NASDAQ: TSLA) shareholders have experienced more than a 250% increase year to date. Some may argue that the stock is now overpriced for value investors. Tesla has exceeded the expectations of a lot of people so far, but will the company be as successful in the long run as it has been recently?
Despite the incredible success that Tesla has seen, the electric vehicle pessimists of 2012 still exist today. Throughout the past year, Tesla has overcome many obstacles, beginning with its debt.
In the presidential debates of 2012, Mitt Romney listed Tesla as one of the "losers" in green energy and blamed the Obama administration for supporting the company. Romney probably didn't anticipate that Tesla would pay off its $451.8 million loan from the Department of Energy within the next year. In fact, after interest, American taxpayers ended up with a $20 million profit from the deal. This makes Tesla the first American automobile company to re-pay the government in full.
We all know about the $49.5 billion loan the U.S. Treasury gave to General Motors (NYSE: GM) in 2009. Despite GM technically paying this debt off, it may never actually be paid off in full.
Of the total money the government invested in GM, there is approximately $20 billion outstanding; the Treasury Department plans to sell off the rest of its stock by the beginning of 2014. It still owned 277 million shares of GM in February, but to make the math work, the average sale price of those shares would need to be $72. In other words, the stock would need to double from its current price just to break even. Fool contributor John Rosevear believes that, when all is said and done, the Treasury Department will end up $12 billion short.
I'm not excluding Ford (NYSE: F) from this discussion, because in 2009, Ford received a $5.9 billion loan from the Department of Energy. Ford still owes money on this loan, which is expected to be paid off ahead of schedule. Clearly, it won't be paid off nine years ahead of schedule, like Tesla has done.
Clearly, Tesla has provided the best value for the American taxpayers, but its growth potential may be even more impressive.
Electric vehicles could be one of the largest growth trends over the next 10 years, and Tesla is leading the way. Through the first half of 2013, Ford's electric-drive deliveries were 46,197. Baum & Associates estimates that, when compared to the year-ago period, electric-drive sales were up 27% in the first half of 2013.
Tesla only sold a few hundred vehicles in the first half of 2012, but according to Autodata, it appears to have sold of over 8,900 in the same period of this year. In fact, Tesla sold more vehicles in Q1 of 2013 than it did for the entire year of 2012. Sales increased by approximately 83% over the quarter before.
Tesla's CEO, Elon Musk, has a very clear three-step process for success in this business:
- Sell a few expensive vehicles.
- Sell more vehicles that are cheaper in price.
- Sell a lot of vehicles that nearly everyone can afford.
Tesla has just entered the second stage with the release of their Model S, which obviously did very well in Q1.
Tesla doesn't expect its momentum to stop. In fact, its outlook for Q2 states, "We expect to be roughly break even on cash flow from operations in Q2, despite launch costs in Europe and a huge increase in service centers, stores, and Supercharger stations."
Tesla is not only expanding in its number of cars but also its model of vehicles. The Model X will hold seven passengers, have storage room, and essentially combine the convenience of a minivan with features of an electric car. It also features gullwing doors, as seen in the picture below.
Tesla's models won't stop there, but will continue to grow for years to come. In fact, the company plans to release cheaper models as time goes on. By 2016, the company plans to have several models of electric vehicles on the market for as little as $30,000-$40,000.
Electric vehicles seem to be riding a wave of success, and Tesla is fully engulfed in it. The problem for other manufacturers like GM and Ford is this: Despite electric cars picking up steam, they simply don't represent a large percentage of overall sales for these companies.
Tesla may not be as expensive as one may think, despite its astronomical growth.
Tesla is arguably the only publicly traded company that relies on EV sales, is financially stable, and has growth priced into the stock. Ford's stock is priced at 0.5 times sales. Tesla's stock is priced at 15 times sales, meaning opportunity has already been priced in.
Ford and GM have had decades to become established, and they still owe the government money. Tesla was founded in 2003 and has just recently gained momentum. For a company this young, investors should not just look at typical metrics for valuation. It is important to also look at capital expenditures, since they helps investors know how much money the company spent on future growth. Tesla has seen capital expenditures increase 2,420% in the past five years.
Between paying off its debt, the phenomenal growth/growth potential, and its opportunity already being priced into the stock, I have drawn my conclusion.
The bottom line
Electric cars are here to stay, and Tesla is planning on releasing several new models in the near future. The opportunity is still mind-blowing for investors looking for loan-free companies with buckets of growth potential. What are your thoughts on Tesla?
Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!