Tesla Motors Inc (TSLA): Should Investors Buy Into the Bullish Sentiment?

Tesla Motors Inc (NASDAQ:TSLA) is a very controversial stock. Rarely does a stock cause so much disagreement and inspire so much debate.

On one hand, the bulls believe Tesla is the next Apple, and on the other hand, the bears believe Tesla Motors Inc (NASDAQ:TSLA) will be bankrupt in the next 5 years. To use a baseball analogy, Tesla is the Yankees, either you love them or you hate them. There is no in-between. With Tesla shares near an all time high, should investors buy the stock?

Fundamentals

Tesla Motors Inc (NASDAQ:TSLA) makes a fantastic car. The model S goes from 0 to 60 in 4.2 seconds. It is fully electronic with 265 miles of range, looks great and handles beautifully. It was Motor Trend’s 2013 car of the year.

Source: http://www.autoblog.com/2012/09/11/2012-tesla-model-s-first-drive-review-video/

Valuation-wise, Tesla shares are pretty pricey. They trade at 136 times next year’s earnings and have a book value of only $1.47. Despite the shaky tangibles, Tesla Motors Inc (NASDAQ:TSLA) has great intangibles that don’t show up on the balance sheet.

The number one intangible for any company is the CEO, and for Tesla, it has one of the best CEO’s in the world. Many people believe that Elon Musk is the next Steve Jobs. Just as Steve Jobs revolutionized multiple industries such as entertainment, computing and mobile phones, Elon Musk has and is destined to revolutionize many industries such as online payments with Paypal, electric cars with Tesla, and space travel with Space X.

The number two intangible is that Tesla Motors Inc (NASDAQ:TSLA) has an extremely low cost of capital and can use that money to grow faster. Tesla managed to raise almost $1 billion in a mix of equity and debt on May 16. Its five-year convertible bond was issued with a coupon of only 1.5% with a stock conversion at $125. In contrast, the 10-year US Treasury Bond is yielding 2.56%.

The number three intangible is market size. The overall car market does $1.5 trillion in annual sales and pure electric vehicles are predicted to take anywhere between 5 to 10% of that market by 2020. With a potential market size of $200 billion, Tesla Motors Inc (NASDAQ:TSLA) has plenty of room to grow.

Analysts are indeed expecting great growth. Tesla’s next 5 year’s growth is expected to be 33% a year.

Looking ahead to second quarter earnings

For the second quarter, Tesla Motors Inc (NASDAQ:TSLA) is not expected to post a profit due to its new lease-financing plan. The lease-financing should help sell more cars but will drag on profits. General market expectations are that Tesla should be manufacturing at least 500 cars a week and making progress in building out its supercharger network which provides Tesla owners half a charge in 20 minutes. Tesla has said that by fall 2013, it expects to build out supercharger networks in most metropolitan areas. In addition, investors are expecting progress to be made in selling cars in Europe and Asia.