Tesla - Electric Shock in waiting?

Social Media is turning off people’s ability to think, Tesla proves it again

Do not get me wrong. Tesla’s CEO Elon Musk is a marketing genius. Not for one second do I think the feat of taking almost 200,000 Tesla 3 orders in 24 hours was a fluke. There is no question that the social media frenzy of buying something that is ‘doing it differently’ has helped Tesla achieve this task. However I am disturbed at how realities rarely seem to get in the way of a good story.

Are we experiencing a sense of Tulip Mania with Tesla? When we look at the performance in stocks such as Ballard Power (BLD CN), GoPro (GPRO US) and Blackberry (BB CN) that promised to revolutionise their respective worlds in automotive fuel cells, action cameras and mobile communications the share prices in each has failed to reflect the initial euphoria and hype.

In this report we highlight 15 considerations as to why investors should contemplate realities of Tesla within the automotive market. The idea that Tesla is about to revolutionise the automobile industry in similar ways to Apple (AAPL US), Uber or Airbnb have to their respective markets is highly improbable. Mean reversion is one reason. Tesla has a global market share of c.0.15%. It would need to grow 80x to match Toyota Motor (7203) for share. Having said that Toyota has 66x more revenue than Tesla yet only trades at 5x its market capitalisation, not to mention having record operating margins over 10%. Even stacking Tesla on a price-to-sales ratio (as it makes no profits yet) would make it 18x more expensive than Daimler (DAI) the maker of Mercedes-Benz which is in probably one of its healthiest product cycles for decades. 3x more expensive than Apple. Take your pick (there is a selection in a later section).

As we once again look at the group think that pervades the financial industry we conclude that history has at times proven not to be on the side of conventional wisdom, or the consensus view, but on the side of those who dissented from them. More significantly, we see too how the sell-side has failed clients by not being rigorous and questioning enough. We have seen so often that the time of greatest ‘so called’ certainty is, in fact, the time to be most sceptical. If we spent more time on corporate biopsies as financial analysts there would be far fewer autopsies. Let’s jump in.

Full report available here.