Tesla Gets the Yellow Flag

 | May 31, 2013 | 11:48 AM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

tsla

I got to test drive a Tesla (TSLA) Model S last night. Took it around CNBC, took it on the highway, took it on the side streets of Summit, N.J., where I live. I even took it to the inn that I co-own to get a "refill" at our charging station.

All I can say is, wow, I want one. It is that terrific. I don't need a new car and I don't even know if it is practical because driving to the shore or to see my dad in Philly, my longest trips, would have me run out of power on the Garden State Parkway or Jersey Turnpike -- not what I would pay $90,000 for. But I want to be very clear: It was the best, most quiet and most powerful ride I have ever had. No wonder Consumer Reports gave the car the highest rating possible. It deserves it.

But does the stock deserve to be bought? Aha -- that's a different question entirely. Here's a stock that has tripled almost as fast as the Tesla roared to 80 mph from a standing stop on I-95 yesterday. It's now worth $12 billion even though it might only make 21,000 cars this year. We know the car company is profitable right now, but it would not be profitable right now without government subsidies, something that CEO Elon Musk pretty much agreed with when we interviewed him this morning on "Squawk on the Street." I say pretty much because he is confident that because of robust orders and lots of interest from overseas, he could triple production, which he says would make the company profitable without the subsidies.

I am reluctant to doubt Musk. Why? Because he has trounced the doubters all the way by making a superior vehicle that is the envy of the industry, a product that is loved by environmentalists and car buffs alike. Like it or not, he has crushed the shorts with that combination of increased production, a profitable quarter and the promise of cheaper financing per vehicle, something that will grow the market far more quickly and introduce the car to a whole new level of buyers.

Now here's the conundrum for me: All my investing life I have believed that if you like a product, or a store, or an experience, and the company that creates the product, runs the store or creates the experience is a public company, that's a candidate for your portfolio.

Tesla fits that bill. But all my life I have also felt that valuation matters, and when I have lost my discipline I have lost money on almost every single stock except Amazon (AMZN). Is Tesla the next Amazon, a company with a superior product that everyone loves? Or is Tesla just a cult stock that has no business being above $100 or above $50, for that matter. Is Musk the next Henry Ford, who brought you the first mass model car, or Steve Jobs, the master of form and function? Or is he just a hustler who knows how to generate buzz while annihilating the short sellers?

Again, I cannot make that judgment. It is too early to tell. So, I can't bless the stock, but I can't tell you to short it like so many others because it's the most dangerous short I have seen in years.

My bottom line? Enjoy the car -- buy one, even. But the stock itself? That's up to you. I am doing something I hate: I 'm punting. Cult stocks can stay cults for years, and Tesla is the ultimate in cars and the ultimate in cult stocks.

Columnist Conversations

Just got off this interview for TheStreet with Dunkin Donuts' CEO. Interesting stuff learned. Big takeaway: t...
Big spread in the small cap index. With RUT up 22.40 to 1111.90, the expiring Weekly (10/24)1140-1160 call spr...
Shares of Waste Management are trading at fresh 52 week highs this morning. The stock is up just over 1...
Market is off to a great start after yesterday's decline. Solid earnings from Caterpillar (CAT), General Moto...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.