Electric car manufacturer Tesla Motors (NASDAQ:TSLA) should be proud of what it has accomplished. It was the first U.S. car company to list an initial public offering since the days of Ford Motor (NYSE: F) and General Motor (NYSE: GM). However, the company’s stock is currently way to0 volatile for a short or medium term investor. Long term investors should also be cautioned as car manufacturing is a particularly challenging industry to conquer.
Over the last year, the company has risen up and down often as one of the leading gainers or decliners in single day. Tesla’s stock lost 10% of its value on December 8th due to a downgrade by Morgan Stanley. However, the stock price had risen about 50% from its lows of the year. The Tesla stock is currently a very volatile stock.
Electric Car Market Unpredictable
The Trefis team currently predicts that the electric car (EV) and plug-in hybrid electric vehicle (PHEV) market will grow from a current size of only $80 million to $6 billion by the end of its forecast period. However, it will take until 2024 to reach that market size. Its outlook is highly dependent on government policies, technological developments, gas prices, infrastructure build-out and general market acceptance. This prediction therefore involves significant speculation.
Currently, the market price for Tesla is substantially below the Trefis market value of $40.74. We believe that this is due to the uncertain market size of the electric car market. In Morgan Stanley’s recent downgrade, they updated their projected market size from 8.5% to 4.5% of the global auto market in 2025. This downgrade reflects a significant change in the long-term outlook for electric vehicles.
Competition is also slowly increasing with both the Chevy Volt and Nissan Leaf selling just shy of 10,000 vehicles in 2011 according to Cnet. In contrast, Tesla hopes to sell about 5,000 of its more expensive Model S sedans in 2012 according to CNN. Tesla will have to compete against two major competitors for what appears to be a smaller total market. This will limit Tesla’s long-term growth potential.