The Model S upgrade is a fine idea, but I’m afraid it’s just too little, too late for Tesla Motors Inc (NASDAQ:TSLA) stock.
The electric car company unveiled a new version of its most affordable vehicle, the Tesla Model S, on Wednesday.
The new model, dubbed the 70D, comes equipped with a 70-kilowatt-hour battery and retails for $75,000, entirely replacing the 60-kilowatt-hour, $71,000 Model S, which is now retired.
TSLA stock traded as much as 3% higher in early trading today on the news.
There’s little doubt that TSLA is improving its product line: the 70D can travel 240 miles on a charge (15% more than the previous Tesla Model S) and comes equipped with all-wheel drive, a variety of new color options and a built-in capability to use Tesla’s charging stations, a feature not formerly included in the base model.
But this sleek, smart new product doesn’t change the fact that TSLA stock remains comically overvalued.
Priced for Perfection
While one look at the TSLA stock price is still enough to send a value investor shrieking and running for the hills, Tesla stock is admittedly not as wildly expensive as it was in 2014. Since topping out above $290 per share last September, TSLA stock had lost 30% through Tuesday’s close as lackluster sales in China and a horrific fourth-quarter earnings miss sparked the ire of Wall Street.
Sales in China were so miserable that TSLA recently had to cut 30% of its sales force in the burgeoning country due to anemic demand.
For a stock that still — even after a 30% fall from its highs — trades around 50 times expected 2016 earnings, TSLA sure has a knack for underwhelming sales numbers. CEO Elon Musk said himself that for Tesla to be a legitimate success in China the company needed to move 5,000 cars. The company sold 4,761. Curiously, only 2,500 of those were registered for license plates, sparking questions about the legitimacy and nature of those sales.
TSLA stock bulls will point to the fact that Tesla delivered 10,030 vehicles in the first-quarter of 2015, sending shares about 8% higher as the 55% year-over-year growth encouraged investors. But TSLA has set a high bar for itself: It must continue to blow out its record results in quarter after quarter if it hopes to get anywhere near its 55,000-vehicle goal for 2015. That demanding milestone would mean an average of 15,000 cars per quarter.
I don’t doubt that Tesla will continue to grow. The Tesla Model X SUV is coming later this year, and I’m sure that will help drive some solid sales growth in its own right. But just because Tesla is doing its best Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) impersonation, vowing to incorporate a self-driving feature in its next software update, doesn’t mean TSLA stock can steer itself to huge gains.
Beware the sexy stocks like Tesla with valuations that price in great future successes. A good rule of thumb for investing: If a stock repeatedly relies on vague tweets from its CEO to drive its price higher, tread cautiously.
As of this writing, John Divine owned shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
