Tesla Stock Is the Original GameStop
January 27 2021 - 9:15PM
Dow Jones News
By Charley Grant
The furious rally in so-called Reddit stocks has captivated Wall
Street and the general public. While the attention is elsewhere, a
much more familiar mania is still worthy of investor scrutiny.
Tesla Inc. reported fourth quarter sales of $10.7 billion and
earnings of 24 cents a share on Wednesday, its fifth straight
quarter of profits, according to generally accepted accounting
principles. The car company also said it would increase production
by at least 50% in 2021 from last year, when it delivered nearly
half a million vehicles. Shares sold off after hours, but faithful
Tesla shareholders barely felt a scratch: Buying the stock in May
2019 and holding on to it would have earned more than 22 times the
initial investment.
That fact should alarm shareholders as much as it delights them:
Tesla is sporting a market cap of $800 billion, which is more than
seven times the combined sum of Ford and General Motors. That
valuation is paired with a minuscule share of the global auto
market. Faith in Chief Executive Elon Musk to work magic evidently
goes a long way.
Granted, Tesla vehicles have proven to be enormously popular
with Mr. Musk's devoted fan base, and competition from established
auto makers has been slow to roll out. Yet to assume ever-growing
market share in perpetuity would be a mistake. Tesla had about 13%
of total electric car market share in Western Europe last year,
according to Schmidt Automotive Research. That lagged behind
Volkswagen by about 10 percentage points.
Competitive concerns aside, the stock changed hands at 1,371
times trailing earnings as of Wednesday. Even that cartoonishly
large multiple provides false comfort: In the fourth quarter, Tesla
earned $270 million in net income but sold $401 million in
regulatory credits to other auto makers needing to meet emissions
mandates, primarily in Europe. Before tax, those revenues carry
100% profit margins. Tesla's credit sales have significantly
outpaced net income for five consecutive quarters, and those
credits might become less valuable over time, as more manufacturers
step up electric car production.
Those concerns are easy to brush off in a market characterized
by frenzied day trading coordinated on social media. But dismissing
them altogether could prove an expensive mistake once investors
eventually sober up.
Write to Charley Grant at charles.grant@wsj.com
(END) Dow Jones Newswires
January 27, 2021 21:00 ET (02:00 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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