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Summary

• Tesla Motors' lack of management focus at the start of the year continues spilling over to lowered EPS estimates.
• The stock is headed toward an all-time high due to excitement over new models.
• Tesla is a trade if it breaks to new highs, but it isn't a long-term investment until the management focus matches the valuation and potential of the stock.

After a quarterly report that included a large loss and the questionable statements from the CEO that sent the stock to recent lows in March, the stock of Tesla Motors (NASDAQ:TSLA) is attempting a run at all-time highs only a few months later. The electric vehicle manufacturer continues to produce phenomenal revenue growth, but the company lacks a focus from the executive that attracts the large valuation for the stock.

For investors, owning Tesla really hasn't paid off for going on 18 months now. The stock hit $265 all the way back in February 2014 and closed this week at $275.

(click to enlarge)

Prior to a couple of downgrades about a week ago and the Greece crisis, Tesla recently traded near all-time highs of $291 back last September. With a valuation of nearly $35 billion after the recent rebound, it appears the market is back to focusing on the grand potential of Tesla and not whether CEO Elon Musk can take the company to the next level without a complete focus on operations.

My previous article highlighted how he appeared focused on other endeavourers and the previous earnings call and persistent SpaceX work suggests more truth to the latter theory. Betting on Elon Musk is one thing, but paying a hefty premium for a distracted CEO is a whole other issue.

Lack Of Focus Equals No Profits

By now, everybody is familiar with the shocking statement made by Elon Musk regarding the potential valuation of Tesla Motors in relation to Apple (NASDAQ:AAPL). Possibly this was just posturing due to the reported employee loses to Apple for a new division focused on a electric minivan. For those who missed it or don't recall it, here's the quote in the Q414 earnings call:

...if you take this year's revenue around $6 billion or thereabout and if we are able to maintain a 30% growth rate for ten years added to your 10% profitability number and have 20PE, our market cap would be basically the same as Apple today. Now that's going to require a bit - on the order of $700 billion. Obviously, getting (indiscernible) require some significant CapEx.

The biggest continuing problem with that statement is that Tesla has not proven that it can produce electric vehicles at a significant profit compared to the highly profitable Apple. After all, Tesla generated revenue of $3.2 billion in 2014 without much of a profit. At that size and scale, Tesla needs to produce something more than $0.14 of profit per share on 125 million shares.

The EPS trends for Tesla remain horribly negative and nothing like Apple. Analysts have reduced 2015 estimates dramatically this year. Within about a week of the earnings report back in February, the EPS estimates for 2015 had already plunged from $2.99 to only $1.37 at the time.

Now after more time for analysts to comprehend the forecasts and even include a Q1 beat, the 2015 numbers have fallen now into the red. Amazingly, Tesla went from a per share profit projection of nearly $3 to an expected loss.

Where the lack of focus and profits hits home is with the oncoming competitive threats. Tesla has no margin of safety if competition either takes market share or forces margins down.

Other Interests

Even possibly the most shocking part of the Tesla Motors story is that the Q4 earnings call was kicked off with a congratulations on another business venture of the CEO.

Andrea James - Dougherty & Company LLC

Hi, thanks for taking my questions and congratulations on the rocket launch.

Tesla is probably the only public company worth over $10 billion where the CEO regularly works on and discusses other endeavors to a great extent. The Twitter feed of Elon Musk is a prime example of what he finds interesting or where he spends his time.

With the company releasing Model S product information on Friday, one might find it odd that his Twitter feed for that day is void of the details. When one quickly drops to the data of the Falcon 9 rocket explosion in June related to his other venture with SpaceX, one sees a whole stream of tweets.

It is possible that Elon Musk is more compelled to discuss a private firm in a public forum, but it is still highly sensitive information that he is sharing regarding SpaceX. One gets the impression that the CEO of Tesla is a lot more interested in space exploration than electric vehicles.

Valuation Comparison

A good point for investors to understand is that not only does Tesla trade at an apparent high price to sales multiple compared to other normal stocks, but the number is outrageous in comparison to auto manufacturers. Even a well run auto manufacturer such as Toyota (NYSE:TM) trades below a PS ratio of 1. The domestic manufacturers such as Ford (NYSE:F) trade at PS levels below 0.5. Heck, Tesla even trades at a higher multiple than the leading technology company in the world that has much higher margins in the form of Apple.

TSLA PS Ratio (Forward) data by YCharts

Takeaway

One has to wonder why the CEO of Tesla makes a prediction about a valuation approaching Apple (one that a normal CEO wouldn't say), yet on the same day he spends his time focused on rockets. All the while, he makes crazy statements about profitability goals and the struggles in China. Now several months later, analysts are forecasting Tesla going from large profits in 2015 to a small loss.

The crazy part is that a modern auto manufacturer probably could produce a lofty valuation if margins were to improve by creating a brand that consumers love similar to Apple in the smartphone and computer realm. After all, Ford and Toyota produce revenues in the $150 billion to $200 billion range so it isn't inconceivable a future leader in the sector could garner previously un-thought-of values. Heck, Tesla probably has a brand approaching that of Apple.

The odd part though is that the CEO of Tesla Motors isn't focused on the auto manufacturer as if that is his main goal. The stock is testing previous resistance and is likely heading higher as excitement mounts over new models and production growth. Until the CEO focuses on making the most profitable cars in the world instead of trying to land rockets all over the universe while making bizarre statements about his main company, it is difficult to justify the current valuation and invest in the stock.

Buy Tesla for a trade on a breakout, but don't make it an investment.