Has Tesla gone too far too fast?

The last week has seen Tesla's shares trade above the $280 level and move into heavily overbought territory.

A Tesla showroom
Source: Bloomberg

I last wrote about Tesla at the end of July just before it was due to post its second-quarter figures. Most of the figures were in line with expectations however, rather than cut its losses they had increased to $61.9 million. So why has the share price improved from just over $220 to the current levels just below $280?

Optimism has increased as CEO Elon Musk set some ambitious targets for the company. He stated that he believed the company would be producing 1,000 Model S and 1,000 Model X cars per week each, contributing to a run rate of 100,000 per year by the end of 2015. Considering the company is currently on track to deliver 35,000 Model S cars by the end of 2014 this appears to be an ambitious target.

The appetite for more environmentally friendly vehicles has been a slow burner in the US. Unsurprisingly, California has been the most open minded to this mode of transport, while states such as Texas have been considerably more reluctant to welcome electric vehicles. Being able to manufacture the cars is only part of the battle; the company has also had to work on providing an infrastructure that will support this mode of transport. In March 2014 just over 12% of the car charging facilities in the US were available in California.

BMW has also launched its own electric car, the i3, and sales in the German company’s model have outstripped Teslas by 70%. This short-term pain may, however, end up being a longer-term gain as improved competition to this specific sector has increased consumer awareness.

The share price is heavily overbought and its sales and infrastructure have retraced rather than improved, which leads us to be cautious of the short to medium-term outlook for the company.  

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