Tesla Motors: Just the Beginning Or Overvalued?

by Hilary Kramer | August 12, 2013 10:30 am

Tesla TSLATesla Motors (TSLA[1]) has shot off like a, well, race car. The stock is up 350% so far this year, with the latest pop coming on Thursday when it jumped another 14% after a strong earnings report. So the question is whether this is just the beginning for TSLA, or is it overvalued and on the verge of losing some of its luster?

I’ve always been a fan of the company. In fact, I did something I don’t usually do and recommended it in my GameChangers service shortly after it went public in 2010. We made a quick profit on it, gaining nearly 30% in about three weeks, and we sold because some of the big automakers were making more rumblings at that time about electric cars, and Tesla’s CEO was being talked about in the media as someone who might have been unrealistic in his expectations.

The Tesla story has been a game-changing one through and through. Back in 2010, it was the only company of its kind to not only produce a commercial, federally compliant highway-capable electronic vehicle, but to do so with style. It single-handedly changed the image of electronic cars, which once were seen as clunky motorized Yugos, into iconic “made in America” objects of aspiration.

Fast forward to 2013 and news flow has been quite positive, with several catalysts driving the stock higher. For starters, there’s the company’s new battery swap technology. Car owners can pull into a Tesla changing station and swap out their old battery for a new one in a minute in a half, and they don’t even have to get out of the car. That’s quicker than filling a regular gas tank, and much faster than the 30 minutes it takes to recharge the battery in Tesla’s cars.

Secondly, TSLA’s automobiles aren’t just flashy and fuel-efficient, they’re safe. Let’s be honest, it doesn’t matter how cool a car is if it’s not safe; people will eventually stop buying. Very aware of this fact, management created a car that could hold its own in any type of collision. The National Highway Traffic Safety Administration (NHTSA) gave the Tesla Model S its top five-star rating for each safety category—front-end crash, side crash and rollover crash. For an automotive company without years of vehicle designs and safety measures to fall back on, this rating is quite an accomplishment.

And that brings us back to CEO Elon Musk. He has really rounded into form as the company’s CEO in recent years, and I now look at him as almost like a young Steve Jobs. He is not only the co-founder of Tesla, he’s also the head of product design, so TSLA’s success is very much because of its CEO. Musk is on the cutting edge of technology, innovation and style. As they say in hockey (I’m a big fan), he “sees where the puck is going.”

I love to invest in and follow these kinds of innovative companies that change the way we live and thrive. These are the kinds of companies I recommend in my GameChangers service, and while we don’t own TSLA at the moment, it’s on my watch list. It not only innovates, it executes well and is run smartly by a fantastic CEO who has a clear vision and is more than capable of keeping TSLA moving in the right direction.

Given that TSLA has been a momentum favorite this year, risk is higher that some of the air could come out of it quickly. I would be reluctant to jump on for the ride at these prices, but I’m watching it closely and recommend you do the same. If the stock pulls back in the coming months, which are typically weak ones for the market, we may get the right opportunity to jump in for the next move higher.

  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA

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