Want proof we’re in a bubble? Look to Tesla

Tesla Motors Inc. (NASDAQ:TSLA) had revenue of $956 million last quarter. That doesn’t sound bad until you consider the company’s operating expenses of $1.031 billion. Tesla’s burning through cash, but shares in the electric car-maker are still holding onto a $24 billion market cap.

That’s stoked fire under David Stockman, Former Director of the government’s Office of Management and Budget. Tesla, he says, is “a crony capitalist con job that has long been insolvent and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.”

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The one chart that should give Tesla investors a panic attack

If you follow comments from Tesla’s CEO Elon Musk, you already know Tesla’s biggest problem is keeping up with incredible demand for the company’s cars. Analysts, however, are starting to call foul. John Lovallo (Bank of America Merrill Lynch) went so far as to lower his price target on the stock to $65 based on what he says are demand problems at Tesla.

Is the market really overvaluing Tesla by almost 70 percent? If you believe numbers from Paulo Santos, Think Finance (source), perhaps it is. Here’s a chart showing Tesla’s production through Q4 of 2015, along with Santos’ estimate for Q1 in 2015:

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Tesla heading for a 68 percent plunge?

If you’re looking for all the bearish arguments against Tesla (TSLA), look no further than analyst John Lovallo of Bank of America Merrill Lynch. Earlier this week, he lowered his price target for the electric car maker from $70 to $65 (per Business Insider). That’s 68 percent less than the stock’s trading at right now (around $204)!

Lovallo believes Tesla’s grossly over-valued for one reason: lack of demand. Tsk-tsk, says Tesla CEO Elon Musk. Demand’s not he problem, supply is. Why then, Lovallo wonders, are Tesla’s factories underutilized?

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How Tesla hits $600 per share

Tesla’s biggest cheerleader has to be Global Equities analyst Trip Chowdhry. Chowdhry’s way out in front of the average Tesla price target of $277.50. His price target? $385. That’s more than 75 percent higher than the stock’s current price. Why’s Chowdhry so bullish?

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Tesla stock worth more than Big 3 combined?

If you’re in search of the ultimate Tesla (TSLA) bull, look no further than Trip Chowdhry of Global Equities Research. He has a $385 Tesla price target. That number’s not based on current car sales; it’s based on the notion that the world’s entire transportation ecosystem is on the cusp of a revolution. And Trip Chowdhry believes Tesla’s leading the charge.

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4 things Tesla must do to hit $300 a share

1) Tesla must hit its second production target date on the Model X. Tesla’s developing something of a reputation for missing its production targets. It happened with the Model S, and it already happened once with the Model X.

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17 Tesla (TSLA) stock price predictions for 2014

Even analysts are having a hard time putting a price target on Tesla’s stock. In the span of four months, the venerable Goldman Sachs has been all over the map in their price targets, ranging from $230 in July to $104 earlier this month.

Wedbush represents consummate Telsa bulls with a price target that’s been as high as $240 (though they’ve since backed off slightly to $205). They based their $240 target on a “proprietary survey” of 892 respondents who showed very strong interest in purchasing an electric car (per Forbes). Here’s a look at a range of recent and current price targets on Tesla stock:

Price target Analyst Date
$39 Bank of America 7/15/13
$97 J.P. Morgan 11/6/13
$104 Goldman Sachs 11/6/13
$140 S&P Capital IQ 11/6/13
$140 S&P Equity Research 11/6/13
$149 Morgan Stanley 11/5/13
$166.33 Thompson’s Mean Price Target 11/12/13
$180 Wedbush 9/25/13
$183.28 Barclays Capital 10/21/13
$187 Robert W. Baird 11/4/13
$200 Dougherty & Co. 11/6/13
$200 Deutsche Bank 11/6/13
$205 Wedbush 11/6/13
$210 Jeffries 10/7/13
$230 Northland Securities 7/7/13
$230 Goldman Sachs 7/16/13
$240 Wedbush 10/15/13

Samuel Zeifman makes an interesting case for buying Tesla shares at $75 each. “Why does one auto company (BMW) trade at a P/E of 10 and offer a €2.50 dividend, (3%) where a similar company (TSLA) trades at a P/E currently around 280 and offers no dividend?” he asks. Good question. Smart money doesn’t make bets like that.

Ultimately, it’s hard to predict the future of a new company in a new industry, though. That’s why Tesla price targets have been so choppy. Earlier this year, Dougherty & Co. was saying they could see Tesla’s stock price at $300 a share assuming the company’s able to max out factory capacity at 500,000 per year. We’re a long way from that, and we’re probably a long way from Tesla at $300 a share, too. Just don’t go short for too long. Shares were trading north of $190 less than two months ago. Anything can happen when the momentum crowd takes over.

How to invest in lithium stocks

As with any emerging industry, investing in lithium stocks requires a lot of homework. Here are three ways to bet on the industry including several lithium stock picks.

Looking at investing from a macroeconomic view, it’s difficult to find arguments against the future of lithium. In the words of Forbes, “The gas engine made petroleum the world’s biggest commodity. The electric car could do the same for (lithium).”

When Tesla Motors Inc. (NASDAQ:TSLA) unveiled the company’s luxury electric car, the Roadster, it took the rest of the car industry by surprise. Chevy and Nissan had banked on enormous lithium batteries in their respective electric cars (the Volt and the Leaf), while the Roadster linked together thousands of small lithium-ion batteries (not unlike what you’ll find in your laptop). The net effect was lower costs and higher performance.

No matter what the end battery looks like though, most of the world’s top electric vehicles rely on lithium battery technology to store and deliver energy. And the demand for lithium carbonate and lithium metal should climb rapidly alongside demand for electric cars and mobile gadgets with long battery lives.

As with any emerging industry, investing in lithium stocks requires a lot of homework. Here are three ways to bet on the industry:

1) Invest in a lithium ETF. There are currently two lithium-related ETFs that trade on the New York Stock Exchange (see my post ETFs explained in pictures for information on ETFs). The first, Global X Lithium ETF (NYSE:LIT) is a pure-play on lithium stocks. It seeks to replicate the yield of the Solactive Global Lithium Index – an index composed of “companies active in exploration and/or mining of Lithium or the production of Lithium batteries.” Buying shares in LIT is like investing in each of the 20+ companies that comprise the Solactive Global Lithium Index.

The second lithium ETF on the NYSE is the Market Vectors Rare Earth/Strategic Metals ETF (NYSE:REMX). REMX invests in companies engaged in the mining of lithium, but also 48 other rare earth and strategic metals companies. That makes REMX far less of a pure play on lithium, but it does distribute risk across several other elements that are increasingly used in high-tech products including wind turbines and hybrid vehicles.

2) Invest directly in lithium stocks. There are a number of companies that are engaged in the mining and production of lithium. The biggest beyond a doubt, though, is Sociedad Quimica y Minera (NYSE:SQM). Based in Chile, SQM produces nearly 30 percent of the world’s lithium carbonate. The company holds rights to huge swaths of the Salar de Atacama – a Chilean lake bed that’s purported to hold 27 percent of the world’s lithium. Here’s a list of the world’s top five biggest lithium stocks (including SQM) and their stock performance year-to-date:

Stock YTD Gain
Sociedad Quimica y Minera (NYSE:SQM) -19.25%
FMC Corporation (NYSE:FMC) -13.8%
Rockwood Holdings, Inc. (NYSE:ROC) +.64%
GS Yuasa Corporation (TYO:6674) -34.7%
Saft Groupe SA (EPA:SAFT) -28%
Galaxy Resources Limited (ASX:GXY) -56.9%

As you can see, it hasn’t exactly been a banner year for lithium stocks, but that could change quickly if and when the global economic gloom starts to lift (or if we suffer through higher crude oil prices). If that happens, you can expect penny lithium stocks to outperform their larger rivals (see my post Top five penny lithium stocks).

3) Invest in car companies that harness lithium technology. The most promising area in lithium technology is the electric vehicle industry. Several companies in the space stand out including:

  • Tesla Motors Inc. (NASDAQ:TSLA): Manufacturer of the all-electric Tesla Roadster
  • General Motors Company (NYSE:GM): Manufacturer of the hybrid Chevy Volt
  • Nissan Motor Co., Ltd. (PINK:NSANY): Manufacturer of the all-electric Nissan Leaf
  • BYD Company Limited (HKG:1211): Manufacturer of the all-electric E6 (see my post BYD Auto IPO: Is the battered Chinese battery and car maker stock a buy?)


Will natural gas cars beat out electric vehicles?

Electric vehicles be damned… Honda Motor Co.’s (NYSE:HMC) been quietly ramping up for nationwide U.S. retail sales of its natural gas-powered Civic GX this fall.

Electric vehicles be damned… Honda Motor Co.’s (NYSE:HMC) been quietly ramping up for nationwide U.S. retail sales of its natural gas-powered Civic GX this fall. The car is something of an oddity, toiling away in the shadows of more “press-friendly” electric cars.

Click to see the rather enormous gas tanks in the Civic GX (via PickensPlan.com)

We’ve all heard of the electric Roadster from Tesla Motors Inc. (NASDAQ:TSLA), the Leaf from Nissan Motor Co., Ltd. (PINK:NSANY) and the plug-in hybrid Chevy Volt from General Motors Company (NYSE:GM). How many of us have heard of the Civic GX?

The GX runs on compressed natural gas (CNG) and is currently available at 139 dealerships in 33 states. This fall, Honda hopes to have a revamped model in showrooms across the country. And the timing couldn’t be better. Nationwide, gas prices are hovering around $3.95 a gallon (per GasBuddy). Compare that to natural gas where the cost of a Gasoline Gallon Equivalent (GGE) ranges from $0.88 in Oklahoma to $2.60 in New York.

Despite competing with an ever-growing array of hybrid and electric cars, the GX has still taken the “Greenest Vehicle of the Year” award from the American Council for an Energy-Efficient Economy for eight years running. Best of all, Honda’s currently got a monopoly on the CNG passenger car market.

And that’s led to robust sales for the admittedly small market. Sales this year (at 643) are already three times higher than they were at this point in 2010, per the Los Angeles Times. Pending a steady supply of parts out of Japan, Honda hopes to produce at least 2,000 GX’s this year at a base price of $25,490.

Whether natural gas cars will one day out-number electric vehicles is up for debate, but there are several benefits to CNG cars:

  • Low-cost fuel (ranging from less than $1 to $2.50+ per GGE)
  • Greener power when compared with electric vehicles (as the overwhelming majority of electricity comes from fossil fuel-based power plants)
  • 85+ percent of natural gas is produced domestically

The biggest hurdle to full-scale adoption of natural gas-powered cars is the lack of filling stations. As of January, there were fewer than 1,000 versus 200,000 gasoline stations (per CNBC). The government’s trying to bump up that number via tax incentives and credits.

One of my favorite selling points for CNG vehicles? Individual consumers can also pony up about $6,000 to get a home-based filling station installed that taps into existing natural gas lines (per the Los Angeles Times). If you log enough miles behind the wheel, a CNG almost sounds like a no-brainer.



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Tesla Q4 earnings preview (TSLA)

Don’t expect a profit heading into Tesla Motors Inc.’s (NASDAQ:TSLA) earnings report, but that doesn’t mean you shouldn’t expect big things from the Silicon Valley car company.

Valuing shares in a stock that’s yet to post a profit is like throwing darts at balloons at the carnival. You feel like you should be able to do it (and you can every now and then), but you’re going to lose a lot of money in the process. Still, this is what we know going into Tesla Motors Inc.’s (NASDAQ:TSLA) earnings report that’s due after trading hours on Tuesday:

1) An upside surprise. Tesla reported a loss of $0.38 per share in Q3. Analysts were calling for a wider loss of $0.43 per share. Revenue grew by $2.8 million last quarter, and investors were clearly cheered as the stock rose 40 percent on the news. Its since given back all those gains.

2) Another loss on the way. Analysts are calling for a loss of $0.50 per share in Q4. If we get another pleasant surprise (meaning the company’s frittered away less money than analysts thought), we’ll likely see another surge in the company’s share price.

3) Tax credits could boost the bottom line. Nothing concrete has happened yet, but the White House has floated the idea of offering a $7,500 tax incentive for electric vehicles. If such a measure passes, it will, undoubtedly, benefit Tesla, and that should have a positive impact on the stock.

4) Beautiful lines. Tesla’s Model S is gorgeous. I don’t care if you’re talking about gas, bio-diesel or propane-powered tractors, the Model S will be one of the sexiest vehicles on the road when it debuts next year. That should drive strong sales, even with an expected retail price around $57,000.

5) Share dilution anyone? Tesla’s pushing hard to get its third car, the hush-hush all-electric Model X SUV on roads by 2014, but they’re going to need a cash infusion to do it. “It could be a secondary [offering] or a strategic investment,” Tesla CEO Elon Musk said last week. “There is no shortage of interest.” If the company can surprise investors to the upside on Tuesday, a dilutive stock offering would be better received than it would on the heels of bad news. Maybe that’s their plan?

6) Keeping your enemies close. Rather than trying to strong-arm its way into the auto industry, Tesla has worked hard to position itself as a car maker and a parts supplier. Toyota gave Tesla a good deal on its sprawling NUMMI plant in California. In exchange, Tesla landed a gig as the power train supplier for Toyota’s RAV4 EV. If the RAV4 sells well, Tesla does well, too – meaning they’ll have more (much-needed) revenue to add to their balance sheet. The company has also forged partnerships as a battery supplier for the Mercedes A-Class and Freightliner trucks.

7) It’s not about the numbers. Tesla’s shares aren’t trading on dollars and cents; they’re trading on the assumption that one day the company will be making cash. No one expects a profit anytime soon. As the company adds more vehicles to its line (including a rumored “economy” car after its Model X SUV) and inks more deals as a supplier, expectations will start ratcheting up. Unless fuel prices magically start falling, though, I see no reason why Tesla won’t be able to compete with the world’s largest car companies in the years to come.



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