Daily Gains Letter

Tesla: Car Company or a Tech Company?

By for Daily Gains Letter |

Tesla ValuationIt has been a while since I talked about the prospects for Tesla Motors, Inc. (NASDAQ/TSLA), which continues to be one of the more actively traded momentum plays in the stock market.

In the past, I was encouraged by Tesla and felt a downside move to $185.00, based on my technical analysis, could be an aggressive investment opportunity. I no longer feel that way.

How Tesla Reached Its $24-Billion Valuation

While other momentum plays in the stock market are easier to evaluate, that has never been the case with Tesla. If you solely look at the number of units sold, it would make no sense why the stock market places such a high valuation on Tesla.

Many Tesla bulls talk about the great advanced electric-powered car produced by the company. They are correct. The company’s cars are a fantastic example of American ingenuity. That I can say. But for me, the story is becoming somewhat redundant and disappointing.

Tesla’s stock currently sits precariously at around $185.00. On the chart, one of two things will happen: 1) the momentum buyers in the stock market could bid the stock back to above $200.00; 2) there could be continued minimal support for the stock at below $180.00. Tesla is well down from its high of $291.42 in September 2014, but I wouldn’t be too anxious to enter on the long side of the stock market.

Tesla Motors Inc

Chart courtesy of www.StockCharts.com

The breakdown of Tesla was highlighted by the 50-day moving average (MA) pushing below the 200-day MA, signaling a bearish death cross on the chart.

Now, I’m not saying whether to buy or short Tesla in the stock market; rather, I’m simply looking at it as a good example of what options are open to investors in this kind of company.

Tesla initially raced higher on the charts largely due to the high gasoline prices. But with the breakdown in oil prices, this is not really a key factor now for stock market traders.

Should Tesla Be Valued as a Tech Stock?

Some Tesla bulls argue that the company should be valued as a technology company with advanced cell battery technology. The new factory being built by Tesla and the potential demand for its advanced battery technology from non-auto sectors reflects this. This is the wildcard that could offer some buying support for Tesla.

I wouldn’t be buying Tesla simply because it makes nice-looking cars. After all, so do BMW and Porsche.

Tesla reported a surprise loss in the fourth quarter that was a whopping $0.44 per diluted share short of the Thomson Financial consensus. China, which I initially thought would be a big coup for the company if it was successful, is proving to be a hurdle due to poor sales and acceptance in the country where BMW dominates the higher-end. BMW is also coming out with an electric car that I expect will give Tesla a run for its money globally.

Porsche is also looking at an electric vehicle, and we all know General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F) will compete on the lower end.

While I’m not making a judgment on Tesla in the stock market, I just wonder how a company that sells about 45,000 cars annually is worth such a high valuation—unless you value the company as more than just a car company, but a technology company. Tesla has to decide which side it wants to play.

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