Tesla 2014: Can Growth Last?

12/23/13 10:40AM EST

Tesla 2014 Can Growth Last Tesla 2014: Can Growth Last?

Image via Flickr/ randychiu

Tesla Motors Inc (NASDAQ:TSLA) is one of the stocks that defined 2013 on the market. The electric car company shot to prominence in the early months of the year, and continued to be impressive through to the very end. Investors who watched their money multiply in the stock must be wondering what to do with it as the end of the year approaches. There is, unfortunately, no right answer.

Tesla is still something of a mystery. The company’s car is revolutionary, and its proprietary technology is set to keep it ahead of competitors for at least two more years. Tesla Motors makes a perfect vehicle, but it has yet to prove that the market for it exists. The company is set to sell 21,500 cars in 2013. That’s far from a justification of a $17 billion valuation.

Tesla Stock Shaky At Year End

The biggest issue facing Tesla Motors toward the end of the year has been multiple media reports of fires in or near the company’s Model S sedan. None of those stories has resulted in the company recalling vehicles, or appropriating fault, but the stories have hurt the value of the company’s brand, and the value of its shares.

That left many investors out of pocket as the end of the year approached. Tesla stock fell through October and November and recovery has been anemic in October. Most growth stocks are only good for a short term bet. If they outperform in one year, their performance is likely to be much worse the following year. With Tesla more than 25 percent below its 2013 high investors may be tempted to dismiss this idea in favor of recovery expectation.

There is nothing that says Tesla Motors Inc. (NASDAQ:TSLA) has to recover the value it has lost. More strongly, there is very little that makes that achievement likely. The company is in a precarious position, and it is still massively overvalued given its fundamentals. Tesla is a great company, and the Model S is a great product. At $17.5 billion market cap, Tesla stock is not a bet on their success, it’s a bet on their domination.

Tesla A Gamble At $140

Tesla Motors Inc (NASDAQ:TSLA) is never likely to sell enough Model S units to be worth 20 billion. In order to be fairly valued at $200 per share the company will need to sell a car to middle-earners. The Tesla Model E is expected to be that car in 2016, but there are problems it cannot solve.

Tesla has not proven that a market for an electric car exists at that scale. The fire incidents have shown that the company’s success is built on the relatively shaky foundations of brand worship. Tesla may face a real issue in the coming months that really puts a dent in the value of its brand. The fire incidents were just a warning.

Tesla is likely to be an exciting company in 2014, and it may well be a top performer. It won’t, however, be a good pick in January. There is far too much risk built into the stock. Prudent investors won’t think twice before locking in their gains and leaving the Tesla revolution behind for the time being.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.