Tesla 'Breaks' Consumer Reports' Rating + Investment Skepticism about Tesla

[C C]

Tesla 'Breaks' Consumer Reports' Rating
http://news.discovery.com/autos/drive/te...150827.htm

EXCERPT: The Tesla Model S P85D, the highest-performance and most expensive version of the all-electric luxury sedan, has earned even more plaudits and compliments from Consumer Reports magazine. The P85D, in fact, "performed better in our tests than any other car ever has," the publication said this morning. In fact, it did so well, that it broke the Consumer Reports Ratings system, in the magazine's own words. An early-morning press release from the consumer periodical played up the "breaking the system" aspect, noting that the P85D scored 103 points on its 100-point ratings scale -- which it called "a quandry," since the scale doesn't go past 100 by definition....

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To be rational about Tesla is to miss the point
http://www.ft.com/cms/s/2/bb6abd4a-4b4f-...77189.html

EXCERPT: Look at the numbers; they are borderline insane. For every car it had sold by the end of last year, Tesla Motors had burnt through about $40,000 in research, development and capital expenditure. The company is worth about half as much as BMW, which makes 35 times as many vehicles. Tesla has never made an annual profit, yet investors keep pouring money in.

In early spring, Elon Musk delivered an analysts’ call for the ages. With most companies, these calls are death marches through the footnotes of an earnings report, but the Tesla founder announced that his company would be spending “staggering amounts on capex” and would be worth $700bn, around the same as Apple, in 10 years. [...]

It was sweet of Mr Musk to bother with a cash flow valuation exercise, but he may have been patronising his audience. The idea of applying the same valuation to Tesla as you might to Ford makes little sense. This looks more like a venture investment. You do not buy Tesla because you think you know what profits it will make. You buy the stock because you think some new technology such as Tesla’s will change the world in ways that invalidate any such estimate. This is a play on the looming changes in the car and energy industries. To profit from the electric car race, you have to back the winner. Missing out is costlier than backing a few losers along the way.

It is all prone to risk: the novel technology [...] No one can make up their mind whether it is for real. All that seems certain is that, a decade hence, the company’s value will be nowhere near its current market capitalisation of $28bn. If Mr Musk fails to realise his bold vision, the company might be worthless. If you buy Tesla now and the company delivers, you will have hit a giant home run....

[Yazata]

I interpret Tesla's 'breaking' Consumer Reports' rating system as an indication that the magazine's editors personally want to promote electric vehicles and weighted their criteria to mirror those preferences.

I think that more objectively, there are downsides to Teslas. Range most obviously. Difficulty recharging the things out on the road would be another. They are good electric cars, perhaps the best on the market. But they aren't game-changers at this point and they definitely aren't for everybody (assuming that everybody could afford one, which they can't).

I agree with the author at the Financial Times. Tesla's valuation isn't remotely comparable to how conventional car companies are valued. (What's 'P/E' when there's no 'E'?) Investors are speculating on the premise that electric cars are going to be the wave of the future and that Tesla will eventually own that (maybe someday) profitable market.

There's also the Elon Musk 'coolness' factor. Musk is kind of the new Steve Jobs, a guy who just catches the public's imagination, where everything he does is desirable and game-changing because... well, because it's him doing it. My own opinion is that stock values get kind of exaggerated when we see that happening.