The Tesla Bubble: Tesla Stock Price Is Overvalued And Everyone Except The Fanatics Knows This

The Wall Street Journal declares that Tesla stock is in a “rare underperformance rut,” but what’s really underperforming is investors’ common sense.

There is scant reason for a share of Tesla Motors Inc. (NASDAQ:TSLA) to be valued at $165, just eight bucks and change under the 52-week high of nearly $174 it touched late last month. Compare that to just six months ago, when the price was under $40, and you start wondering if the share price is being pumped up by the hype following a string of positive recent developments for the maker of the critically acclaimed luxury electric Model S.

Yes, it has been deemed one of the safest cars on the market, it’s being sold globally, its national Supercharger network in the U.S. is growing fast— but the latest official figure has sales at under 11,000 units for the first half of the year. By comparison, Nissan’s Leaf has sold more than 70,000 units worldwide since it debuted in 2010, the year Tesla went public, and U.S. consumers bought more than 10,000 electric cars in August alone. The Model S is a luxury sedan and right now the only significant player in this segment. What happens when the Germans pile into the luxury EV (and plug-in hybrid) game?

Tesla is on its way to topping 20,000 unit sales for 2013 – and the Model S may become the No. 1-selling EV in the U.S. (we won’t know until Tesla releases updated numbers) -- but that volume still makes Tesla a boutique carmaker in an increasingly crowded niche for green (or greener plug-in-hybrid) machines.

Showing up at the 65th International Motor Show in Frankfurt that kicked off on Tuesday are the BMW i8 city car, the Volkswagen e-Golf, the Mercedes S 500 plug-in hybrid as well as a slew of electric and plug-in hybrid concepts. This means that moving forward Tesla is going to see more competition.

The latest call for rational exuberance has come from Barclay’s Research, which estimates that a year from now a share of the company’s stock will be priced anywhere between $87 and $279. Where it will be in this broad range hinges on Tesla’s ability to become both a mass market producer and one with a lower-cost so-called Gen 3 model on the market, “even though uncertainty still exists in both cases,” according to this week’s research note from Barclays’ analysts Brian A. Johnson, Dan Levy and Steven Hempel.

This sober assessment comes less than two months after Goldman Sachs automotive analyst Patrick Archambault estimated a near-term stock price range of $58 to $113 depending on the company’s ability to pump up volume sales and get the Gen 3 to market. And for the stock to be valued at $113, Archambault estimates Tesla on its way to selling 250,000 units five years from now.

Tesla CEO Elon Musk says the company will be selling 40,000 units by the end of 2015. For the stock to be valued higher 12 months from now than it is right now, Tesla has to become a mass producer of luxury electric cars. That means scaling up revenue to the level of a major car company. Tesla’s revenue for the past year stands at $1.3 billion. Compare that to the world’s second-largest luxury automaker, Audi, which reported $65 billion-plus in revenue in the same period.

The upcoming, stylish Model X Tesla SUV will certainly help generate more cash flow, but the company needs a lower-cost vehicle on the market ASAP. Nothing short of a buyout from a major player in the auto industry would justify a stock price in the same league as current mass producers.