Chevy Volt a Failure - GM to Layoff 1,300

Tesla's valuation is 40 percent of GM's -- on sales of 25,000 cars. It's P/E ratio is more than 15 times greater than GM's.

That either says a lot about Tesla and how great a company it is, or a lot about how crappy a company GM is. I'd bet on it being more that Tesla is way overvalued -- particularly because, if you look at who owns each, the profile for Tesla is a bunch of momentum traders who have had a field day causing stop-loss selling for anyone who has been foolish enough to short Tesla. GM, on the other hand, has apparently become a buy for a lot of hedge funds looking for value. George Soros has been a big owner and added to his stake at the end of last year. Kyle Bass is a big owner. David Einhorn has a big stake.

I'd love to be short Tesla -- because I know eventually it is going to crash down to earth. But I can't sustain getting battered by a truck with no brakes, while I wait for sanity to reenter the world.

The good news for Tesla, in what it reported -- it is no longer selling emissions credits as its main source of income. At least it is living and dying as a car company.

The bad news -- it is a niche car maker -- selling $75,000 + luxury cars to a bunch of recent stock market millionaires. As long as we have cheap credit stimulating a phony economy -- that is benefiting only a small amount of people, it can hang in there selling cars to those people -- even if it doesn't justify anywhere near that valuation. It's plan for growth is to expand into China and feed its new batch of credit millionaires -- as China has been fueling a credit bubble that looks like the U.S. in 2006 and 2007. When the overall credit bubble pops, and it will, it is not a stock I would want to be holding.

As for the cars themselves? I will still bet that it will never be anything other than the niche market it is today. I may be wrong, but I am going to have to be proven wrong. It has less to do with EV vs. gasoline than the fact that not many people are in the luxury car market. If Tesla tries to move into a more generalized marketplace, it finds out what the Nissan Leaf has found -- this is a technology with little mainstream demand at the price point it comes in at.

 

You are 100 percent correct. Something is worth whatever someone else will pay for it.

So Tesla is currently a $27 billion company.

That said. ... The company is expected to lose money in 2014 on a net income basis (and has not had positive EBITDA to date). It either has to do something dramatic to justify being worth 40 to 50 percent of what GM is worth as a company. ... or if it stays at this kind of valuation without growing its profit, it is not trading on any metric I could ever be comfortable with. Experience says that things that trade that whimsically eventually crash when people's whims change -- historically, people look for tangible value at some point in time.