Cash Flow Mat­ters

Industry Leaders - - Crowd Funded Inc. -

It’s too early to say any­thing. Musk hasn’t yet de­liv­ered an elec­tric car that’s af­ford­able to the mid­dle­class. Tesla’s stock price sug­gests that Wall Street is all the more pos­i­tive about Tesla’s chances.

There are oth­ers who take a more cyn­i­cal view and hold the be­lief that Tesla is a clas­sic case of “bub­ble” stock, in­clud­ing Tesla CEO Elon Musk. Last month, Elon Musk agreed that the cur­rent Tesla val­u­a­tion de­fies grav­ity, “I do be­lieve

this mar­ket cap is higher than we have any right to de­serve.”

A founder shouldn’t be talk­ing down on his val­u­a­tion. Be­sides, Tesla needs some easy cash flow for all the dense expenditures. Take a look at it – over the past three years Tesla has spent nearly $4 bil­lion on cap­i­tal expenditures. Tesla is fully de­pen­dent on the kind­ness of the Wall Street to fund the expenditures.

With val­u­a­tion ex­ceed­ing $50 bil­lion, Tesla could even snap up a few small com­pa­nies to re­duce the de­pen­dence on the cap­i­tal markets. Elon Musk is not buy­ing it, though. The car chief doesn’t want to cap­i­tal­ize on Tesla’s soar­ing price, and hopes to achieve long-term growth tar­gets by ad­dress­ing short­term chal­lenges, rather than rid­ing on the out of line re­al­ity. “Tesla is ab­surdly over­val­ued if based on the past, but that’s ir­rel­e­vant,” he says. “A stock price rep­re­sents risk-ad­justed fu­ture cash flows.” Whether you be­lieve it or not, Tesla’s sur­plus val­u­a­tion re­flects an un­der­ly­ing op­ti­mism.

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