Can Tesla Keeps Its $32 Billion Market Cap?

By Douglas A. McIntyre Published Sep 29, 6:43AM EDT

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Tesla Motors Inc. (NASDAQ: TSLA) will launch its Model X sport utility vehicle (SUV) to great expectations. It is the first diversification beyond its four-door sedan, the Model S. The reception of the new vehicle will start to suggest the perceived value of Tesla in the stock market, where it has an extraordinarily high market cap of $32 billion.

To put Tesla’s market cap in perspective, GM’s is $45 billion. General Motors Co. (NYSE: GM) will deliver more than 8 million cars and light trucks this year. Tesla will deliver less than 60,000.

While the Model X will be a gauge of demand for the next generation of Tesla vehicles, the measure is false. The SUV will sell for over $70,000, and the “performance” version for nearly $100,000. With highly limited production, the Model X will impress car enthusiasts and Tesla’s most bullish shareholders. Beyond that, investors will have to wait for the much less expensive Model 3. The price of this car is expected to be $35,000. It will be a gauge of the mass market demand for Tesla products. That will be a better yardstick of Tesla’s market value.

Arguably, Tesla faces headwinds that are stronger than they were a year ago. First among these is gasoline prices. The cost to fuel a gas-powered car has dropped by 40% in a year. Second, major manufacturers are chasing Tesla’s success as a quickening pace. Either could undermine the forward motion of Tesla as a viable company, which means either could dent Tesla’s $32 billion market value.

Many investors and Wall Street analysts believe that Tesla’s rational market cap should be half of what it is, or even lower. It was at that level in late 2013 before it posted quarters in which Model S sales were more than in the hundreds. A new set of skeptics have pushed Tesla’s share price down to $248, which is off its all-time high of just below $287, but well above its 52-week low of $181.

The Model X could be enough to keep Tesla’s market cap at extraordinary levels, but it only has a few months to show it has the chance of becoming a mass market manufacturer.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.