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Could Tesla Finally Be Rolling Over?


Even if Tesla becomes a great buy at the bottom of the next bear market, its valuation suggests it's due for a big tumble.

Tesla (NASDAQ:TSLA) reported earnings this morning. The company announced the sale of 5,500 Model S cars, revenues of over $430 million and a loss of $38 million. The company said what is holding it back is lack of batteries and constraints on the supply line, not demand.

However, another major problem for Tesla is that not only does it have to build and manufacture cars, it also has to build an infrastructure of a supercharger networks. This adds to expenses. In addition, if it is to be a real competitor in the auto world longer term, it is going to need some lower-priced brands to appeal to the majority of consumers.

There are also other automakers now entering the electric market, which will add to competition.

And, if you look at the numbers, they still do not make sense: If you annualized this past quarter's sales of $430 million, that is about $1.7 billion in sales for a company with a market cap of over $20 billion, or about 12 times yearly revenues or sales. Even if it increases sales tenfold, it trades at nearly twice sales. General Motors (NYSE:GM) trades at one-third of sales, Honda (NYSE:HMC) trades at about 70% of sales, and Tata Motors (NYSE:TTM) trades at about 60% of sales.

I do realize that Tesla is growing faster than other carmakers, but is there a reason that an electric car maker should trade at a nearly twentyfold the valuation of other carmakers, whether they are based in India, the United States, or Japan?

Highflier stocks like (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Google (NASDAQ: GOOG) are taken out and shot during major bear markets. Even if the long-term growth is there, highfliers trading at huge multiples are often killed during a bear market. has become a staple in the Internet retail business, but during the 2000-2002 tech wreck, its stock fell nearly 90% in price.

Apple and Google, whose stocks have become the darlings of Wall Street, were killed during the 2008 financial crisis. Google fell from $747 to $247 during that bear market, and Apple fell from $196 to $75.

Highfliers have higher valuations and more air in the balloon, so they tend to fall faster.

Now we do know what the market holds longer term. As I stated, stocks like Amazon, Apple, and Google emerged from the rubble as leaders. If Tesla builds an infrastructure and sees sales soar, it could be the leader that emerges from the next bear market (in a upcoming article I will show why I think a bear market is bound to start within the next few years). Of course it could also be the next DeLorean...

Even if Tesla becomes a great buy at the bottom of the next bear market, its valuation suggests that it's due for a big tumble. Today's decline could just be the start of such a sell-off.
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