Is Tesla All It's Cracked Up to Be?

08/20/2015 7:00 am EST

Focus: STOCKS

When prices at the pump were more than double their current levels, opting for an electric vehicle made sense, however,weak oil prices are driving a compelling case for buying traditional cars instead, so Chris Lau, of Kapitall.com, offers a technical comparison between the stock of a traditional car maker vs. that of an electric car leader.

Tesla's electric car has a lot of environmental appeal, but low gas prices make the high price tag less appealing.

Weak oil prices are driving a compelling case for buying traditional cars instead of electric cars. Consumers may no longer want to pay a premium for a Tesla (TSLA) when the long-term savings for filling up a tank are mounting. When prices at the pump were more than double their current levels, opting for an electric vehicle made sense. For now, the company has no problem raising money from the market, but if the market falls, will the risk associated with holding Tesla increase?

On the stock market, Tesla's high forward P/E of 92.26 still assumes demand for the company's electric car will continue. Furthermore, if an August 10 Reuters report is accurate, it may be disconcerting that Tesla loses $4,000 for each Model S sold. Negative cash flow in the next few quarters is also worrisome.

In a filing dated August 14, Tesla priced its secondary stock offering at $242 per share and will sell 2.7 million units. The impact on the stock price was minimal. Over a one-year period, Tesla’s stock is down 7%. Meanwhile, General Motors (GM), which is also down in the same period, is rebounding:

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Lower energy prices should help traditional automobile firms like GM. Having cheaper gas lowers the cost of driving for consumers. GM is also boosting the mileage of its electric car, the Volt. For 2016, the car’s mileage will improve to 53 miles from 38. Once the battery runs out, the car will switch to the gasoline engine.

Tesla is compelling for those who believe the company’s investment in its car plants and batteries will give the company a moat over traditional automobile companies. Bears are betting on difficulties ahead: the short float is 24.2%.

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1. General Motors Company (GM): Operates as a global automaker. Market cap at $50.05B, most recent closing price at $31.71.

2. Tesla Motors, Inc. (TSLA): Designs, develops, manufactures, and sells electric vehicles and advanced electric vehicle powertrain components. Market cap at $33.55B, most recent closing price at $260.72.

(Monthly return data sourced from Zacks Investment Research. All other data sourced from FINVIZ.)

By Chris Lau of Kapitall.com

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