The Case Against Tesla

Last week, I drove from Reno to Southern California to move my son to Stanford for his first year at college. On the way back to Reno, I was passed endlessly by Teslas in the HOV lane. In California, zero-emission vehicles are allowed to drive in the HOV lane with only one person in the car.

Arriving back in Reno, I discovered that my office building has a big banner that said: “TESLA Welcome to Nevada.” There is no doubt that Nevada is very excited about the recent Tesla deal, even though Northern Nevada already has Apple,, Cisco Systems, Intel, Intuit, Microsoft, Oracle and many more technology companies coming all the time, thanks to lower business taxes.

What’s interesting is that Tesla is also able to extract a huge tax incentive from the state of Nevada, according to The Wall Street Journal. Specifically, the WSJ discussed how Tesla received $1.3 billion in tax breaks to build its $5 billion lithium battery factory in Northern Nevada. These tax breaks include no property taxes for 10 years, no sales taxes for 20 years, and $195 million in transferable tax credits that it can sell to other businesses. In addition, Tesla will also receive a 10% to 30% electricity discount for eight years.

Nevada Governor Brian Sandoval is very excited about securing the Tesla deal and is rightly very proud that he beat out the other Western states trying to woe Tesla. The Wall Street Journal article pointed out that Nevada also paid 15 times more than any other state to attract the business. As a result, Governor Sandoval’s stature is rising on the national stage, and I suspect the criticism about the price he paid to woe Tesla will soon fizzle. What truly makes America great is how our respective states fight for business and try to out incentivize each other.

Given the growing popularity of Teslas and the development of a massive factory in Nevada, one might think that Tesla (TSLA) is a good investment opportunity. But nothing could be further from the truth.

I have never recommended the stock; it’s a little too rich for my blood. I am unwilling to pay more than 12 times forecasted sales and 500 times forecasted earnings for a car company that is running out of batteries. That’s right; the real reason Tesla has to build a new battery plant is that it has cleaned Panasonic out of the lithium batteries it uses in the Model S, and it desperately needs to make more efficient lithium batteries.

At more than half the market valuation of GM ($32.3 billion vs. $54.5 billion), there is no doubt that Tesla is grossly overvalued. In addition, analysts have been revising their estimates dramatically lower as of late. The consensus estimate for the current quarter is $0.02 per share, which is down 94% from the estimate just three months ago.

While Tesla currently earns a B-rating from Portfolio Grader, it was downgraded from an A-rating just four months ago. Its earnings momentum now garners an F-rating, earnings growth a C-rating and analysts earnings revisions a D-rating. So right now, I would recommend avoiding Tesla shares.


Louis Navellier

Louis Navellier

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