Tesla Motors: Is It Time to Buy Into the EV Revolution?

With shares of Tesla Motors trading around $27.85, is (NASDAQ:TSLA) a Buy, a Wait and See, or a Stay Away? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for Stock’s Movement

Tesla’s shares took a hit at the end of September when the company cut its third-quarter and full-year 2012 revenue outlooks. Issues with suppliers and longer than anticipated training periods for employees cut the number of Model S cars the company expected to deliver in 2012 down from its target of 5,000.

The U.S. Department of Energy also asked the company to accelerate repayment of a loan, which the company has done so far on time and in full.

Elon Musk has said that the company could be cash-flow positive by the end of November.

H = High Quality PipelineTesla Roadster and Model S

Tesla Motors is in the business of designing, manufacturing, and selling electric cars and electric vehicle powertrain components. Broadly, its strategy has been to first produce high-end cars for early adopters, and transition into the mass market. There’s a lot more to be said about Tesla’s product line than is contained here, and there is a massive amount of conversation surrounding its vehicles. But at a glance, the company has produced quality, innovative cars, and promises nothing but more to come.

Tesla’s first vehicle was the Roadster, a battery-electric sports car produced between 2008 and 2012. The Roadster was the first production BEV to use lithium-ion battery cells and travel more than 200 miles on a charge. At a base price around $109,000, over 2,350 have been sold so far. The amazing quality of the car took many by surprise, and in many ways legitimized electric vehicles.

The Model S is a full-sized electric sports sedan that was officially launched to customers on June 22, 2012. The first 1,000 were Signature series models with 85 kWh battery packs that have a range upwards of 300 miles. The base Model S will start at $49,900 after a $7,500 federal tax credit for a 40 kWh battery unit that has a range of around 160 miles.

The Model X is a full-sized battery electric crossover sports utility vehicle that was unveiled on February 9, 2012. Deliveries are planned for 2014.

The company is also building a network of Supercharger stations.

E = Equity to Debt Ratio is Close to Zero

Given the scale of its particular ambition, Tesla Motors is in many ways a totally unique company. Some of its peers are small, privately held companies such as Universal Electric Vehicle, Fisker Automotive, and Persu (formerly Venture Vehicles), but are farther removed from realizing mass-market ambitions. Tesla’s major competitors could be seen as automotive giants like General Motors (NYSE:GM) and Toyota Motors (NYSE:TM). GM’s positively-reviewed Chevrolet Volt is currently the best selling plug-in in America. Toyota’s ever-popular Prius is the natural landing spot for fuel conscious customers who aren’t ready to give up gasoline entirely. Tesla is still selling to early adopters, not the mass market, so direct comparisons are a bit frivolous. If and when the day comes, the interplay in the auto market will be much more complicated, but the company would ultimately compete with the big boys.

Tesla Motors’ equity-to-debt ratio of 7.06 looks pretty bad when compared to GM’s, which is 0.36, and Toyota’s, which is 1.12. This type of high ratio may be expected from a company in Tesla’s shoes, but it is important to understand the company’s position.

We also need to consider total debt and total cash on hand, which in the most recent quarter for Tesla is $438.97 million in total debt, and $210.55 million in cash. GM has $14.79 billion in total debt, and $32.51 billion in cash. Toyota has $149.01 billion in total debt, and $38.86 billion in cash.

A = A-Level Management Runs the CompanyElon Musk

Over at Glassdoor.com, Tesla Motors CEO Elon Musk has an 83 percent approval rating.

Musk has a long list of accolades related to his achievements in engineering and business. After selling a company called Zip2 to Compaq for $307 million in 1999, he made his name as a co-founder of PayPal (NASDAQ:EBAY).

In 2002, he founded Space Exploration Technologies, commonly known as SpaceX. In 2008, the company landed a $1.6 billion contract from NASA to transport cargo to the International Space Station, replacing the Space Shuttle program after it retired in 2011. He is currently CEO and CTO at SpaceX.

In 2003, he co-founded Tesla Motors, where he remains chairman, product architect, and CEO.

In 2008, he was named by Esquire magazine as one of the 75 most influential people of the 21st century.

In 2009, he was awarded The Golden Space Medal by the Fédération Aéronautique Internationale for the ambition and achievements of SpaceX.

Also in 2010, he was listed as one of Time Magazine’s 100 people who most affected the world in the Thinkers category. And, although not necessarily an accolade that demonstrates his ability to lead a business, Elon Musk is reportedly one of the inspirations for the characterization of genius-billionaire-playboy-philanthropist Tony Stark in Iron Man. He even had a cameo.

In 2011, Forbes listed him as one of America’s 20 most powerful CEOs under 40.

T = Technicals on the Stock Chart are Weaker than Desired

As of October 22, 2012, the stock price is 3.07 percent below its 20-day simple moving average; 4.55 percent below its 50-day simple moving average, and 10.08 percent below its 200-day simple moving average.

Since the beginning of 2012, the stock price has been in a slightly downward trend, down 1.99 percent this year-to-date through October 21, and down 1.82 percent year over year.

Tesla Stock 52-Week 10.22

E = Earnings Are Increasing Quarter over Quarter

Top- and bottom-line growth are both important in diagnosing how well a company is doing. Over the past five years, Tesla Motors has been posting steady increases in revenue, while earnings per share have been increasingly negative.

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) 73,000 14,742,000 111,943,000 116,744,000 204,242,000
Basic EPS ($) (0.84) (0.89) (0.60) (1.63) (2.53)

Fiscal year is January-December, the last day is December 31.

Quarter June 30, 2011 Sept. 30, 2011 Dec. 31, 2011 March 31, 2012 June 30, 2012
Revenue ($) 58,171 57,666 39,375 30,167 26,653
Basic EPS ($) (0.59) (0.69) (0.81) (0.86) (1.00)

Tesla will announce its third quarter 2012 financial results after the bell on Monday, Nov. 5.

(Data sourced from The Wall Street Journal.)

Conclusion

Elon Musk and Tesla Motors are effectively trying to change the world. The company is staying true to its mission, producing great vehicles, and making good strategic decisions.

That being said, it is in a risky position. It is too early to guarantee success. Mass market adoption of electric vehicles is still years away, and there are a thousand obstacles to face along the way. However, if the tipping point comes, Tesla will be at the head of the pack. Because of this, and the key metrics above, Tesla Motors is a Wait and See.

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