Tesla Motors (NASDAQ:TSLA) May Not Be As Hot As You Think

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By Jacob Maslow

San Francisco, CA - April 2014: Tesla Motors model S sedan electThere is a lot to be excited about Tesla Motors (NASDAQ:TSLA). After all, its stock wouldn’t be valued as highly as it is if there are no firm facts to back up the hype. Regardless, there is so much hype regarding this electric automotive stock that you can cut it with a machete. That is how thick the hype is. While it is true that Tesla is making great progress and producing new products, like the Model X and the Model 3, there are certain chinks in its armor that you need to pay attention to.

I am not saying that Tesla is dead in the water and you should stay away from that stock. What I am saying is that you need to pay careful attention to the real facts beneath the hype. You need to keep your eyes focused on key factors that may influence how much the stock would appreciate in the short to midterm.

A lot of company observers are excited about the hype regarding its built-to-order capabilities. However, when you are looking at the finished goods inventory figures for the company, it appears that Tesla is embarking on a new strategy. Instead of waiting for the customers to customize their cars and then building those cars, according to the company’s finished goods inventory numbers, there are actually a lot of pre-made vehicles available for immediate sale. This is not in keeping with the hype of a completely built-to-order company.

Another factor you should pay attention to is the capital spending Tesla is shelling out. If you look at its capital spending, it appears that it is getting ahead of itself in terms of the demand. It is shelling out lots of capital to build capacity when the demand hasn’t really fully materialized. Another key factor to keep in mind is that Tesla is now including pre-delivery prepayments into its customer deposits figure. This would then make it hard to determine how much actual order activity is going on.

Putting all these factors together should give you a clear idea of what is going on with Tesla. Again, we are not saying that Tesla is a bad stock. What we are saying is that you need to pay attention to the complete set of facts and also weigh the company’s price-to-earnings ratio before making a truly informed investing decision.

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