Electric car maker Tesla has been a Silicon Valley darling for the last couple of years, with a stock price that's soared 1,500 percent since 2010.

But that era might be coming to an end. Tesla's stock fell sharply on Monday, decreasing 10 percent to $253.86 following a morning sell-off, which continued a rout begun on Friday. Company founder, entrepreneur Elon Musk warned last week the stock has been trading too high. On Thursday, Musk told CNBC:

I think our stock price is kind of high right now...If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear.

For quite some time, however, analysts have said the company's stock value has traded far out of sync with its ability to produce and sell its high-end cars.

A story from Barron's in July, 2013, when Tesla stock was trading at less than half its current value, calls into question its ability to maintain highflying shares. Analysts were skeptical of items like outsize costs of batteries for the company's vehicles, as well as its ability to ramp up sales on Tesla's more wallet-friendly Gen III car, expected to roll out of the manufacturer's factory within the next two years. 

According to Barron's:

Morgan Stanley sees Tesla's free cash flow hitting $400 million in 2016--the year before Gen III's expected launch. A Harley-Davidson multiple on that cash flow--10 times--would support a Tesla stock price in the $30s. A BMW multiple of three times would point to a $10 price. Those levels surely undervalue Tesla and Musk. We suspect there'd be plenty of buyers at $50. 

Technical issues, such as hacking, could also be an issue. A New York Times video today entitled Searching for the Crashless car called out Tesla several times for investigations into the ability of hackers to break into the car's onboard computer systems and unlock them from anywhere. 

In July, a team of hackers from a Chinese security firm reportedly exposed design flaws in Tesla's model S, which allowed hackers to unlock the cars, as well as honk the horns and operate windshield wipers.

In June, Musk announced he would make all of Tesla's patents "open source," in an attempt to speed up electric car production and adoption.  

 

Published on: Sep 15, 2014