01:30 pm
December 18, 2017

Tesla, Inc. Stock Hits New High — Time for a Reality Check

While Tesla investors bask in their recent big gains, they should keep in mind how dependent the stock price is on bullish expectations for future milestones.

Shares of electric-car company Tesla (NASDAQ:TSLA) hit a new high of just under $390 during trading Monday, though the stock is closer to $382 at the time of this writing. Those gains add to the stock’s bullish run since the company started delivering its Model 3 this summer, and they bring its year-to-date returns to 89%.

While Tesla stock’s latest rise was fueled in part by speculation about the company’s upcoming products, the longer-term fate of the stock will likely depend primarily on how well the automaker can ramp up the production and delivery of its vehicles.

Investors look to upcoming product launches

Tesla grabbed headlines last week as it announced a rollout of new Superchargers designed for city centers. In addition, the family of a man killed in a crash in a Tesla vehicle last year that happened while Autopilot was activated said the technology wasn’t at fault.

But more speculative news could also be driving bullishness toward the stock in recent days. Tesla CEO Elon Musk recently confirmed the company will unveil its new electric semitruck on Oct. 26. Further, Musk may have teased the company’s plans for its pickup truck last Wednesday when the CEO and co-founder responded to a question about whether a pickup truck is coming after the Tesla Semi. Musk tweeted back saying, “What if we just made a mini version of the Tesla Semi?”

A teaser photo of Tesla's semitruck.

TESLA SEMI. IMAGE SOURCE: TESLA.

During Tesla’s annual shareholder meeting this summer, Musk hinted that the company may unveil something alongside the Tesla Semi. “I would just really recommend showing up for the semi-truck unveiling,” Musk said. “Maybe there’s a little more than we’re saying here.”

Could Tesla be planning to give investors a sneak peek into an early prototype of its pickup truck in October?

A reality check

No matter how game-changing the Tesla Semi might sound, or how intriguing the possibility of an early look at a Tesla pickup truck might seem, investors should keep in mind that the electric-car maker is already priced for astounding growth. After the stock’s massive run recently, Tesla has a market capitalization of about $64 billion — well ahead of General Motors and Ford at $56 billion and $46 billion, respectively. Yet GM’s and Ford’s revenue handily trumps Tesla’s. In the trailing 12 months, GM and Ford brought in sales of about $170 billion and $154 billion. During this same period, Tesla’s revenue was just $10 billion.

Sure, Tesla has already laid much of the groundwork for its planned Model 3 production ramp-up, building its Gigafactory and spending billions more in capital expenditures recently. Further, the demand for Tesla’s production to soar from an annual run-rate of 100,000 vehicles to closer to 500,000 by next year is basically already in the bag. Tesla has hundreds of thousands of reservations for its recently launched Model 3 — and these reservations are steadily climbing.

But Tesla’s $64 billion market capitalization prices in more than a fivefold increase in vehicle sales in the coming years. It prices in meaningful growth for years to come after this increase. It assumes Tesla can execute on unprecedented production ramp targets. It also assumes that an onslaught of new electric vehicles from other automakers will boost the overall market for electric vehicles at a faster rate than competition eats at Tesla’s market opportunity.

Tesla vehicle production at Tesla's factory in Fremont, California.

TESLA VEHICLE PRODUCTION. IMAGE SOURCE: AUTHOR.

Tesla investors are likely happy to see shares trading higher. But shareholders should keep in mind that Monday’s stock price is based almost entirely on a rosy outlook for the electric-car maker’s future.

I’m not selling shares. But I’m not buying either.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Ford and Tesla. The Motley Fool has a disclosure policy.

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