Skeptics bemused by Tesla’s share price
As Tesla's share price continues to go from strength to strength, many skeptics are perplexed at how the company can keep on going. Despite the fact, a recent statement from the company suggested it had enough capital for at least the next 12 months Tesla recently announced an equity and convertible bond issue to raise just over $1 billion. There is no doubt that Tesla does tend to capitalize on a strong share price, but even the most optimistic of followers surely need to revisit their forecasts?
As we have touched on in our earlier articles, Elon Musk is the face and the voice of Tesla Motors. Earlier this month, Musk became involved in a spat in Australia which led to him promising to assist with the energy shortage. This placed both himself and the company in the headlines again and, hey presto, just a short while later the company is raising $1.2 billion in additional capital. Whether you like him or not, there is no doubt that Elon Musk is a marketing genius!
The landscape on which Tesla trades seems to change on a regular basis with the Tesla Model 3 the latest marketing success story. The company has also refined some options available to customers for earlier models which simplify the situation for everybody. However, Tesla is currently worth more than $40 billion despite the fact the company has never reported an annual profit.
The group has been excellent at selling the story of electric vehicles, and indeed an array of EV Patents was made available to the wider industry. Critics point out that even the most optimistic of future profit forecasts going out to 2020 still place the company on 56 times earnings. This would drop quickly if the company was to show significant growth in the future but that is not certain at this moment in time. Tesla will no doubt need to come back to the market for additional capital at some point, and we will be talking billions of dollars again.
Shorting the stock
While short sellers have had sporadic success in making money on Tesla share price movements, there is certainly a strong core of support for the company amongst investors. Official information shows that around 26% of the company’s “free float” shares have been sold short by investors looking to buy them back at a lower price. This is a significant figure, indeed the highest amongst the NASDAQ 100 group of companies.
You have to hand it to Mr. Musk this is a man who keeps bouncing back from ongoing criticism from many leading lights in the investment community. While he has failed to deliver on an array of deadlines and targets in the past, he still continues to talk very passionately about the electric car market. The recent merger with SolarCity turned into something of a PR nightmare although again he believes there is good long-term value in the transaction. Investors still seem confident in the long-run future of the company which was shown in a recent $1.2 billion equity and convertible bond fundraising exercise. However, at some point Tesla will need to stand on its own two feet, when and how are still great points of debate.