The shares of Tesla Motors have been riding in the fast lane, but are they about to hit a speed bump?
The California-based maker of a luxury electric sedan recently proclaimed its first quarterly profit ever, and the stock has doubled to more than $90 a share in the past month. Its founder and chief executive Elon Musk has a stake worth $2.35 billion and on Twitter he has relished the demolition of investors known as short sellers who bet against Tesla's soaring stock. "Seems to be some stormy weather over in Shortville these days," Musk wrote on April 25.
On Wednesday, Tesla announced that it would raise $830 million in new stock and debt offerings, which it would use to repay ahead of schedule its oft-criticized loan from the Energy Department. Musk said he himself would buy $100 million of the offerings, and the stock climbed still higher in after-hours trading.
But some analysts still say the company's stock price is a bubble on a par with the foamy tech-era stocks. It is selling for 585 times its estimated 2013 earnings.
Moreover, Tesla would have booked a loss without the $68 million sale of special credits created by California regulations that reward makers of "zero emission" vehicles - a misnomer for cars that rely on electricity generated by power plants that emit greenhouse gases.
One indication that Tesla's stock might be overblown is a comparison with the Fiat Group. Fiat's market capitalization is just short of $8 billion, while Tesla is worth about $10 billion. Yet Fiat sold 1 million cars in the first quarter this year, while Tesla sold 4,900. Fiat, which owns Chrysler, earned $40 million; Tesla - not counting the sale of regulatory credits - lost $53 million, or more than $10,000 a car.
Yet automobile analysts are along for the ride with Tesla, whose Model S won Motor Trend's 2013 car of the year honors and a rave review from Consumer Reports. After Tesla's share price zoomed past his target, Morgan Stanley analyst Adam Jonas on Tuesday doubled his price target to $103 a share from $47. Tesla shares closed Wednesday at $84.84 each and were up another 5 percent Thursday morning. (Morgan Stanley is one of the co-managers of the Tesla debt offering.)
The zero-emission vehicle, or ZEV, credits are a key revenue source and have provided more assistance to Tesla than have generous federal incentive programs. California's Air Resources Board has mandated that large volume sellers of cars must altogether meet a minimum quota of 7,500 zero-emission vehicles this year and next. Those who fall short must buy credits from those who produce more than their share.
Tesla's strategy for cars with 200-mile ranges dovetails with the ZEV rules, which say that cars with a 100-mile range get three credits per vehicle while those with a 200-mile range get four. Long-range cars with 15 minute recharging capability get five credits, and Musk has hinted that a new faster recharging device will soon be unveiled.
Rival companies privately lament that they have been effectively subsidizing Tesla. Morgan Stanley's Jonas said in an April 26 report that Tesla made $40.5 million, or $13,900 a car, through the sale of ZEV and other credits to other car companies in 2012. He estimates Tesla could earn $250 million this way in 2013. In the first quarter this year, ZEV credit sales accounted for 12 percent of Tesla revenues, Musk said.
However, Honda, a buyer of credits, now has its electric vehicle for sale, said Menahem Anderman, president of Advanced Automotive Batteries, which reports on the industry. He said that by the end of the year the six major automakers that need to meet the 2013-2014 California mandate will all have their own electric vehicles available.
Musk said in a letter to shareholders that "we expect this to decline significantly in future quarters" and that the price of credits had already fallen. But he said that Tesla plans to have a 25 percent gross profit margin "assuming zero ZEV revenue."
At the moment, that is just one of several uncertainties facing Tesla. J.P. Morgan's auto analysts said in a May 9 report that "we continue to have some concerns regarding the market appeal of a more mass-market electric vehicle" and worry that Tesla could be restricted to the relatively small luxury-car niche. (The Tesla Model S price starts at $62,400 and usually tops $80,000.)