Cash Flow Matters
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.