Tesla still isn't selling nearly as many cars as Ford or GM, and competition for green car credits is heating up.
The recovery of the US auto industry is increasingly undeniable. Sales growth for the major American firms, Ford (F), General Motors (GM), and Chrysler was announced this morning and all three are posting double-digit growth. Many car manufacturers are calling this their best summer since 2006. Ford and GM both posted sales gains of over 20% across all of their brands, from hybrid to luxury, as overall auto sales for the country peaked out over 16 million. Which begs an important question: with established competitors back on the rise, will upstart Tesla (TSLA) have to sell more cars to justify its stock price?
Click on the interactive charts below to see data over time.
Tesla is the best performing large-cap so far this year, by a lot. Its price has gained 410% this year, edging out the second fastest growing large-cap, Netflix (NFLX) by over 100%. It garnered consistently good press all summer – including an impressive safety rating for the Model S, which completely totaled the crash-simulator. And let's not forget Elon Musk's entertaining side projects, like the Hyperloop. Tesla's much lauded marketing strategy, which involves placing show-rooms in malls and shopping areas where they are much closer to consumers, has vaulted the Model S to be the third biggest selling luxury car in the country.
However, Tesla still has a lot of problems, prompting many bears to take short positions in the company. Tesla's upward momentum has led a lot of the short-sellers to cover, but about 10% of the company's float remains on borrowed shares. That's down significantly from where it was in January, indicating more people are willing to wager that Elon Musk will follow in the footsteps of Steve Jobs – creating a new market and then dominating it – as Apple was able to do with smartphones. Tesla's bulls point to the car's battery, by far the best in the industry in charge-time and range. And the company's capital is higher than expected thanks to the incredible valuation. But as always, there are detractors on the other side.
That's because Tesla is still not making any money off selling products to consumers, if you apply Generally Accepted Accounting Principles (GAAP). According to the company it made about $26 million in the second quarter of this year. That was a 70% spike from Q1, and sent the share price soaring. However, much of that cash came via special leasing agreements Tesla arranged between itself, its customers, and certain lenders. Tesla was able pocket all of that borrowed cash and report it as earnings, a practice that conflicts with GAAP. Without including that revenue source, the company would have lost almost $30 million over the same period of time.
This doesn't mean Tesla is doomed, or even a particularly bad investment. Many have said that its meteoric rise makes it something of a cult-stock. And with increased competition from Nissan, which offers cheaper electric cars and has even started selling off extra green car credits on its own, you get a much more competitive environment for Tesla. As of early August, the company would have to be selling over 400,000 cars a year by 2025 to justify its current share price. And while that number might seem like a lot, remember that GM sold close to that number (275,000) this month. Most Americans can't afford luxury cars, which means Tesla's vehicles will have to get much, much cheaper if it is to compete with the industry giants. However, unlike Ford or GM, Tesla's main product – its super-batteries – have a world of applications outside the auto industry.
Maybe that's what all the fuss is about.
Can established automakers beat Tesla in the race to provide affordable electric cars? Use the interactive list below to begin your own analysis.
3. Tesla Motors, Inc. (TSLA, Earnings, Analysts, Financials): Designs, develops, manufactures, and sells electric vehicles and advanced electric vehicle powertrain components. Market cap at $19.97B, most recent closing price at $168.94.
(List compiled by James Dennin. All data sourced from Finviz.)
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