Tesla Motors Recovery Is Overblown

12/3/13 11:52AM EST

Tesla Motors Recovery Is Overblown Tesla Motors Recovery Is Overblown

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Tesla Motors Inc (NASDAQ:TSLA) stock was trading up on Monday after it was revealed that the company was cleared of responsibility in a German Model S fire. The company’s stock has suffered in recent weeks after media reports of a rash of fires in the company’s only electric car. Though the report is good news, it probably won’t have much effect on the company’s prospects.

Tesla stock still looks overvalued by any reasonable metric. The company will manage to make a profit for the full year 2013, and it will likely hit or exceed its target car sales. That doesn’t mean it’s a good bet for investors, however. The fires were not what really caused the crash in the value of the company, it was problems in the valuation of the stock itself that did that.

Tesla Motors Stock Recovery

On Tuesday’s pre-trading stock in Tesla Motors Inc (NASDAQ:TSLA) was up by more than 5 percent. The electric car company revealed that it was contacted by German auto safety regulators about a Model S fire that took place in that country. The report says that there was no manufacturer fault involved in the incident, according to Tesla. That’s good news for investors, but it may not be worth a 5 percent increase in share price.

The investigation into fires in the United States is still ongoing and though analysts seemed reasonably confident that Tesla Motors  is not at fault in the incidents, a clean bill of health will have little effect on the shares in the longer term.

A poor result from the report could have a disastrous effect on the company, however. A full recall is something the company may not even be able to handle at this point, and the reputation damage could be monumental. That is an unlikely occurrence, and it certainly isn’t the biggest risk that Tesla Motors Inc (NASDAQ:TSLA) is faced with right now.

Tesla Valuation Looks Shaky

Tesla Motors Inc (NASDAQ:TSLA) hit a bottom of below $120 per share in recent days, but that doesn’t mean there will be support at that level forever. The electric car maker is still valued on its potential. The media coverage of the Model S fires took a certain amount of value out of the company’s brand. Another incident could cost the company even more, and investors are still investing in a risky asset.

The biggest risk for Tesla Motors is that there is no market for electric cars. People are still suspicious of the technology, and the company has yet to prove mass market appeal. With all of it’s eggs in a single Model S-shaped basket, the company faces huge risks to its reputation.

Tesla Motors Inc (NASDAQ:TSLA) is a great company, and by all accounts its product is fantastic. That doesn’t mean the company is bound to be successful, however, and it certainly doesn’t mean investors should buy at any cost. $137 per share is still expensive for Tesla Motors shares. Value investors will want to look elsewhere.

Disclosure: Author has no position in any stocks mentioned, nor does he plan to initiate one in the next 48 hours.