For all its pizzazz and promise, investors should keep in mind that electric car maker Tesla (Tesla Stock Quote, Chart, News NASDAQ:TSLA) is more or less still a startup in the auto industry, with all the associated risks.
As the stock crests the $1000 per share mark, that’s the take from Darren Sissons, portfolio manager at Campbell, Lee & Ross, who’s faith in Elon Musk’s leadership is also pretty thin.
“In one way, I see it as a very expensive startup run by a guy in whom I don’t have a lot of confidence,” said Sissons, speaking on BNN Bloomberg on Thursday. “I think he’s very good at making money for himself.”
“If I had the courage I’d probably short Tesla myself because if you look at the relative valuation of Tesla relative to like Tata which makes the Jaguar brands, you’ve got Ford, GM —it’s just a massive differential, and usually you a mean revision,” Sissons said.
“In this case, when one trades at significantly an outside valuation you just know it’s going to convert. So, good product but don’t confuse a good product with a good investment,” he said. “If you’ve made money, I would be taking your gains off the table and maybe play with some of the house’s money and redeploy elsewhere.”
Tesla has skyrocketed in recent months, more than doubling since the start of April, as investors seem to feel the tailwinds behind the car company and put their faith in Tesla to lead the pack in electric vehicles.
“I think (Elon Musk is) very good at making money for himself…”
But the company’s good mojo is coming from more than faith in electric cars as it also rests on Tesla’s better-looking balance sheet and ability to meet or surpass production estimates, which it has done in recent quarters. The more solid performance has help lift TSLA to essentially a triple since last October.
This week, investment bankers Jefferies shot up its 12-month target for TSLA to a Street-high $1,200, saying Tesla product range and technology are still well ahead of other companies even as the competition grows in the e-vehicle space.
Others think there’s less upside than that. Miller Tabak market strategist Matt Maley said the stock is now overbought.
“It’s not as overbought as it was in February, but to bet that it’s going to get to [an] even more extreme overbought condition is a dicey proposition,” said Maley, to CNBC on Friday.
On the industry itself, Sissons said the rise in electric vehicle use will require massive investment in infrastructure, representing a potential roadblock to growth.
“At a really high level I think the electric vehicle revolution is coming, but one of the challenges is who’s ultimately going to pay for the infrastructure to support?” Sissons said. “So there’s going to be a marginal cost upon which point either taxpayers or the likes of Toronto Hydro here in Toronto are having to pay for that extra capacity.”
“I think that’s one of the bottlenecks that we’ve got to face on the car itself,” he said.