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Tesla’s Rally Is Running on Fumes: Schoenberger

Jeff Macke
Breakout

Tesla (TSLA) CEO Elon Musk may seem to be using his entrepreneurial super genius for the forces of societal good, but he's making some powerful enemies. Last week General Motor's (GM) VP of Global Development told AP the company is working on an electric car with 200 mile range and a price tag under $30,000. The fact that GM refused to say when or even if such a product would be mass produced goes a long way towards explaining why Musk doesn't seem too concerned about the competitive threat.

Judging by shares of Tesla the stock market is convinced the electric car industry is going to be huge with or without Detroit. Despite electric cars accounting for a mere 0.3% of total U.S. auto sales, shares of Tesla are up 430% in 2013. General Motors rakes in more than 100x as much revenue as Tesla but is only about twice the size in terms of market cap. The stock market seems to giving Tesla credit for selling cars to people who haven't even been born.

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It's safe to say Tesla has more room for growth than GM but it requires a leap of faith significantly beyond the range of electric cars to say TSLA deserves to be valued 50x higher than GM on a trailing revenue basis. You can torture the valuation model until it screams but the best reasons for keeping shares of Tesla in a portfolio don't have anything to do with numbers.The best things Tesla has going for it as an investment are Elon Musk and professional investors getting desperate into the end of the year. "A lot of managers are lagging the broader indexes so they're trying to play catch up buying these cult stocks," explains Todd Schoenberger of LandColt Capital. It's hardly a fundamental battle cry but Schoenberger thinks that desperation could drive Tesla even higher into the end of the year.

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Would he dare to hold it after that? "No chance!"

[Note: at the time of publication Jeff Macke was long shares of Tesla]

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