Tesla CEO Believes Company is Overvalued
Tesla CEO, Elon Musk, characterized with his vision for a better, sustainable future, spoke to The Guardian newspaper: ‘’I do believe this market cap is higher than we have any right to deserve.’’
This comes after a hot-headed tweet back in April, where Musk defended his company’s valuation saying: ‘’Tesla is absurdly overvalued if based on the past, but that’s irrelevant. A stock price represents risk-adjusted future cash flows.’’
— Elon Musk (@elonmusk) April 3, 2017
The first quarter of 2017 was promising for Tesla’s market capitalization which marked $50 billion, exceeding Ford and General Motor’s for a brief while. The 40 percent surge in stock has soared after optimistic prospects of investors and analysts for Tesla’s most-awaited car, the Model 3. However, Tesla’s reports, released earlier this month, reveal a $330 million loss for the first three months of the year.
Musk explained to The Guardian: “This is not some situation where, for example, we are just greedy capitalists who decided to skimp on safety in order to have more profits and dividends and that kind of thing,” he said. “It’s just a question of how much money we lose. And how do we survive? How do we not die and have everyone lose their jobs?” he added.
Musk also pointed out that his company only produces one percent of General Motor’s total output.
Founder and president of Kynikos Associates, James Chanos, explained his views on Tesla during the SALT 2017 conference in Las Vegas, ‘’negative cash flow, huge debts, and a management team with – shall we say – a cavalier regard for the truth.’’
Tesla is one of the market’s poster children. With a low-interest rate environment and a visionary CEO, investors keep forgetting about current losses, missed production estimates and cut earnings, Chanos added.
The automobile and energy company has made about 84,000 cars in 2016. CEO had predicted the automaker would be worth $700 billion by 2025, at that time Tesla was worth just a humble $25 billion.
Chaos believes analysts may not be able to predict what’s going to happen in the next quarter for Tesla, but they can seamlessly tell you what’s going to happen in 2015. ‘’To us, that’s absurd,’’ he added.
On the other hand, Toni Sacconaghi, Bernstein analyst, shared his observations on Tesla’s newest addition to the automobile market. Firstly, Model 3 buyers will likely be extremely different from Model S and X buyers, meaning that they may not be as tolerant of shortfalls, delivery dates, or service appointments, he said.
Secondly, Bernstein thinks Tesla will face a lot of challenges to ramp up its services and delivery capabilities in the next two years, whereas, the downfalls in consumer experience for Model 3 will drastically affect the brand. This can potentially result in order cancellations and undermine high customer satisfaction, he added.
Tesla is a controversial company, but it has been a subject of criticism lately due to its numerous projects in the pipeline, a questionable merge with SolarCity, the release of its most affordable vehicle to date, and last but not least, a reputation for being a money-losing company with constant failure to meet production deadlines.