Is Tesla's stock peak temporary?

Analysis do believe that Tesla's stock is likely to lose its shine amidst lousy earnings of the company

Since February, Tesla stock had a modest momentum and the stock soared following the news that the highly anticipated electric car Model 3 has garnered the reservation of around 400,000 units. But, several analysts believe that the stock’s peak was temporary and slowly it will lose its shine.

Model 3 has come along the tagline of “affordable.” Marked at a price of $35,000 the electric car is reasonably affordable for everyone save Tesla.

For every Model S sedan, the Palo Alto Calif. firm loses over $4,000 and the model cost ranges between $70k and $108k. Therefore, it can be easily assumed that the Model 3 $35,000 price tag is not likely to solve the company’s financial deficit.

The income statement of the auto-tech giant has revealed that the company’s cash has been draining away at a very fast pace. Also, according to TheStreet Ratings, the company has net profit margin of -26.38% and a quick ratio of 0.49 –meaning that for every current liability of $1, the company has the ability to pay back only 49 cents.

Keeping aside the deepening worse side of Tesla’s cash flow and earnings, the automaker is significantly overvalued as compared to its competitors. The market cap on the Silicon-Valley auto-tech giant is over $30 billion which is substantially higher than Ferrari’s $8 billion and Fiat Chrysler’s $10 billion. To be valued at least thrice the value of FCAU –which is more profitable and established company –seems unreasonable and a bit exaggerated. The annual sales of FCAU close at $130 billion whereas the Palo Alto, Calif. firm generates revenue of mere $4 billion.

Moreover, the luxury electric car maker’s market capitalization is approximately two-thirds of General Motors’. This is regardless of the fact that historically German Motors sell 10 million cars annually at a profit while Tesla, last year, sold below 100,000 cars and that too at a loss.

Bob Lutz, former GM executive expressed the following in an interview with CNBC, “[Tesla] costs have always been higher than their revenue… They always have to get more capital. Then they burn through it.”

Mr. Lutz pointed out that since the fall in the oil prices, the demand for electric vehicles have slowed down a bit. Additionally, the competition in the electric car market has been growing rapidly with many established manufacturers entering into the domain of electric cars. In the next few years, Apple might reveal its long awaited electric car. Moreover, in the current year, rival GM’s Chevy Bolt is expected to come out.

Therefore, Tesla’s stock is likely to lose its ability to stand at top. As of now, at the market which closed on Tuesday, Tesla Motors Inc. stock stood at a price of $232.32.