What if Tesla “teslas” Tesla?

What if Tesla “teslas” Tesla?
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There has been a ton of talk recently (and not so recently) about the seemingly crazy price appreciation of the Tesla ($TSLA) stock price. People have been claiming it’s been overvalued since it doubled seemingly overnight to $70. Its 52 week high is $194.50, and it’s currently resting around $180 after the recent unfortunate car fire.

Aswath Damodaran, a preeminent valuation expert, recently valued the stock at $68. Others, with even the most optimistic assumptions have failed to calculate a valuation above $120. Many acknowledge the disruption that Elon Musk and Tesla has brought to not only the electric car market, but the car market itself, and of course, there is a lot of future possibility baked into the stock at these prices. Even Elon Musk himself acknowledged the high multiples his company is trading at right now. But still people talk about the Tesla bubble, expecting it to burst any day now.

And it might. Yes, a lot has to go right for Tesla to earn these multiples. And undoubtedly the stock price will pull back at some point.

But what if Tesla disrupts further? What if Tesla “teslas” Tesla? What if in a few years time, they are able to build cars substantially faster and cheaper, expanding their addressable market? What if people come to expect more from their automobiles and become willing to pay even more for a state of the art piece of design and technology? Look at what Starbucks did with coffee, what Apple did with music players and computers – who would have dreamed people paying such high prices for everyday products when countless cheaper alternatives existed? What if the government, realizing that the technology is very, very viable, expands tax credits and subsidies? Most importantly, what if Elon Musk and his team develop some new piece of technology or refinement to their existing technology that make the current Model S look like an Edsel?

Sure, that is a lot of “what-ifs”, but that’s the funny thing about the future – you never see it coming until you are living it. And before you laugh at the title of this post, ask yourself if ten years ago, did you ever dream a company named “Google” would become a verb synonymous with internet searches?

{ 4 comments… add one }
  • tesla tesla October 9, 2013, 6:36 am

    (Mr musk is a genius) But, let’s think of all those companies that failed during dot com bubble burst. The author never mentioned whys, he just mentioned what if .. would love to see whys there ?? Mr author, is it greed ? That is making you so positive.

    • Kevin October 9, 2013, 8:30 pm

      Certainly not greed. I’ve already participated in the ride up from $30, so I’ve been quite fortunate in that regard. Although there were certainly many companies that crashed and burn during the internet bubble, there are those that thrived. Amazon (AMZN) is the perfect example. It started out as a simple online bookseller, and all along the way, people have questioned its valuation and its future. The stock has risen and fallen along the way to be sure, but if you held on through today, you’d be up over 17,000%.

  • nihal bhat October 11, 2013, 4:03 pm

    kevin- comparing bubbles with a company with a valuation clearly in a bubble(e.g. Amazon) is a joke imho. Amazon though up 17,000% hasnt shown any profit or net operating cashflow. will it ever show a decent profit?

    • Kevin October 11, 2013, 9:43 pm

      Nihal – thanks for the comment. The discussion on Amazon’s valuation, whether deserved or undeserved, would be a very long one. But the massive price appreciation over 15+ years is no fluke. Whether you believe in the Bezos strategy of foregoing additional profits for the sake of reinvesting in the business or not, the long term investment results are undeniable. Nor is the extent to which they’ve disrupted not just online retailing but bricks & mortar retail as well, not to mention ebooks.

      But turning the conversation back to Tesla, if you are saying that Tesla’s stock price has benefited from an overall market bubble, I won’t argue with that. My post was trying to highlight that Tesla’s growth could still be just in its earliest stages, and much like Amazon, could end up innovating in ways that we haven’t even thought of yet (e.g. Amazon Web Services, Kindle, etc.).


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