No wonder Tesla Motors Chief Executive Officer Elon Musk is looking towards other ventures, with the value of his stake in Tesla Motors having increased sevenfold since the company was floated in June 2010 at a price of $17. The current price is around $120, having fallen from a high of $133 earlier this year amid signs that some brokers were becoming concerned about the high rating and the risks associated with the company. This massive increase in the share price is even more impressive when you look at the economic environment over the period and the fact that "tech stocks" have on the whole been out of fashion. So, what does the future hold for Tesla Motors and its headstrong and business savvy chief executive officer?
Share price movement
If you look at the share price of Tesla you will see that during the period between June 2010 and March 2013 the stock traded in a relatively tight band of around $30-$40. However in April of this year we saw the start of a meteoric rise in the stock peaking at $133 in July in a scenario which few people ever thought they would see. Let's not forget that Tesla Motors is a pure electric vehicle company, an industry which has crashed and burned many times over the years, and to all intents and purposes the majority of the motoring media have been very sceptical and very damning about the company's prospects.
It is impossible to say how much Tesla could be valued at in the future, even if sales targets are met, because this is an industry which is so volatile, so unpredictable and, perhaps the biggest kicker, still in its relative infancy. As of 20 July 2013 the company is valued at $13 billion.
Goldman Sachs recently released a report on Tesla Motors, suggesting that the stock was only worth around $84 on current mid range sales forecasts which caused a 10% plus fall in the share price (although it has since partially recovered). There were concerns that Tesla was valued at more than Italian car giant Fiat despite the fact that Fiat sells 200 times more vehicles per annum than the electric car trailblazer.
There is no doubt that the blue touch paper of the Tesla share price was lit when the company announced its first profitable quarter earlier this year. It is nigh on impossible to forecast, with any great confidence, future sales of Tesla’s electric vehicles but Goldman Sachs seems to have erred on the side of caution. The broker suggests that the future could offer anywhere between 200,000 cars per annum, which it believes would support a share price of $113, or on the downside, just 150,000 vehicles which it believes equates to a share price of $58. The operating margin is forecast to be anywhere between 15.2% and 14.8% although some in the market believe that the data used by Goldman Sachs is out of date and therefore of little use.
If you fast forward 24 hours we saw the other side of the investment coin with Dougherty & Co. issuing a summary of Tesla suggesting the stock could be worth anywhere up to $300 in the future if the factory runs at maximum capacity. The broker increased its previous target price of $90 up to $200 - the difference between the potential $300 share price seen as a reflection of the "execution risk". Interestingly the broker also believes that the Tesla Model S offers potential gross margins of 25% before taking into account any financial incentives from the government.
What does the future hold for Tesla Motors?
Tesla Motors has already released a number of very successful electric vehicles into the marketplace, although they have predominantly been targeted towards the luxury end. However the company recently released plans for an affordable electric vehicle within the next four years with a sale price of around $40,000 and journey capacity per full charge moving towards the 200 mile level.
Tesla has been relatively quiet with regards to future sales forecasts, which are very difficult to calculate with any real confidence at this moment in time although one thing does stick out, the company's assembly plant in California has an annual capacity of 500,000 vehicles a year. Even if we look towards the top end of the Goldman Sachs annual sales forecast of 200,000 vehicles per annum, this appears to be well out of sync with Tesla's future plans.
There is no doubt that the future of Tesla Motors will be volatile, the electric vehicle industry is still in its relative infancy but this is a company which continues to surprise on the upside. It was interesting to see Chief Executive Officer Elon Musk recently suggesting the company's long-term future may be as part of a larger cash rich company and he even went as far as to mention Apple, a company with immense financial clout and a cash rich balance sheet, as perhaps a partner of the future.
In many ways it was the move to quarterly profitability earlier in 2013 which lit the blue touch paper on the share price. While it has fallen back from the recent high of $133, there still appears to be underlying support for the company. Perhaps the Tesla share price is one of the more indicative statistics associated with the electric car industry because this company has been at the forefront of new developments, new technology and new sales techniques for many years now.
This article is for information purposes only and no financial advice is offered or given.