Shares of Tesla Motors Inc (NASDAQ:TSLA) stock are overvalued, according to Devonshire Research Group.
Indeed, Devonshire has just released the second part of a detailed report on Tesla Motors scrutinizing the company’s business model. It warns investors that the company’s model is similar toEnron and WorldCom, bordering on a veritable Ponzi scheme at worst. (Source: “TSLA 2.0,” Devonshire Research, May 24, 2016.)
TSLA stock is trading at about $217.00 per share today and it’s slightly up compared to the previous trading session. But consider that TSLA stock was more than $265.00 per share just a month ago. It dropped to $143.00 per share in February.
Devonshire predicts that problems with suppliers—especially battery makerPanasonic—will develop in view of the unrealistically low price advertised for the Tesla “Model 3,” the company’s first foray in the affordable vehicle market. Therefore, according to the research firm, there is a more than 80% chance that Tesla will be late with its Model 3 deliveries, which are currently scheduled for July 2017. Indeed, Devonshire suggests that rather than making Tesla more competitive, the Model 3 has rendered the company more vulnerable in the electric vehicle (EV) market. (Source: Ibid.)
Devonshire also questions Tesla’s “green” or socially conscious image. It points out that the company is still making vehicles for the rich, subsidized by the average taxpayer. The research firm wonders how long it will be, in a presidential election year, before one of the two candidates, or both, start calling out Tesla owners for having been subsidized by the average U.S. worker. That model is untenable as much as the overstretching of suppliers.
Indeed, when it becomes clear that Tesla buyers—whose average household income, says Devonshire, is close to $300,000 per year—get hefty tax deductions for buying an EV while the company itself is funded by taxes, it will become politically untenable. “The social value of this exchange is a persistent question,” says Devonshire. (Source: Ibid.)
Today, Tesla produces only two high-end cars, a luxury sedan, the “Model S,” and a crossover, the “Model X,” whose prices start at about $95,000 and can exceed $140,000 for a well-equipped model. Tesla unveiled the Model 3 on March 31 to be sold at an advertised $35,000, once government subsidies are deducted. Production is supposed to start in 2016 for first deliveries in 2017.
Devonshire also notes that Tesla will have severe difficulties with the Model 3, because it will compete against the automotive majors, which are launching many new electric cars. Nissan,Volkswagen, and Chevrolet have released—or are about to release—vehicles to compete with Tesla’s Model 3 on the consumer market. Meanwhile, in the premium segment, BMW, Audi, and Mercedes have recently unveiled electric or hybrid cars crammed with cameras and radars, enabling these to drive in a straight line of cars or park themselves.