What's behind Tesla's masive stock gains in 2013

Tesla Motors stock has risen over 400% in the last six months, and by market capitalization the company is rivaling the smaller automakers, which raises the question: Why?

The price for Tesla Motors stock (TSLA) briefly touched the $172 level today before a selloff beginning at 2pm Eastern Time erased the days gains. The last few days we've looked at whether Tesla's stock price should be this high, it's risen over 400% over the last six months, whether investors should be shorting Tesla, and whether Tesla is caught in a hype bubble or is it going to actually be this disruptive to the automotive market. But, how did we get here?

Tesla Motors is selling one car, the Tesla Model S. They only have permission to sell it in 30 states, with the other states stonewalling or outright preventing Tesla from selling cars. The sales volume at a bit over 2000 cars a month is on-par with the Nissan Leaf, and is a small percentage of the overall car market, but is a significant percentage of the luxury car market. By all measures, the company has a long hill to climb before it is actually as big a presence among automakers as its stock price suggests.

At TSLA's current stock price, the company is valued at about 260 times its projected 2013 earnings. This is massively higher than other automakers, for example GM is at 10 times 2013 earnings, while Ford is at 11 times. With the Tesla Motors market cap at about $20 billion, this is about 42% of GM's market cap, and about 31% of Ford's. As we've noted in our earlier coverage, this kind of stock price expects huge things from the company, or else the stock market has gone off the deep end into an irrational hype bubble.

How we got here is a string of excellent news about the Tesla Model S, as well as the financial status of Tesla Motors.

All of us who have driven a Model S can attest to it being an excellent car, great performance, an excellent driving experience, and excellent set of features. It's not surprising that Automobile Magazine named the Model S "Automobile of the Year" last November, and other magazines have made similar awards. Most notably Consumers Reports gave the Model S the highest ever number of points in its review.

The Consumer Reports review coincided with the first massive rise in Tesla's stock, when the price nearly doubled rising from $55 per share to almost $90 per share in a week.

Another big push came when Tesla Motors announced a new round of stock sales, to raise more capital, and most importantly to completely pay off the Department of Energy loans under the ATVM program. Paying off the loans early is an excellent sign of the company's self-confidence.

Another factor on the business side is that, thanks to strong sales growth, Tesla recorded its first-ever profit in Q1 2013 and would have turned a profit in Q2 2013 except for the accounting rules concerning recognition of revenue from Model S sales under the new lease-like Model S financing program.

The future for Tesla Motors is bright, with the company projecting strong sales growth over the next several years. This year they expect to sell 21,000-25,000 Model S's, by the end of 2014 they expect to double that to a rate of 40,000 or more Model S's per year, and by the end of 2016 they expect sales to rise to 100,000 Model S's and Model X's per year. These are annualized sales rates, meaning that December 2016 should see about 8,333 units sold, according to company projections.

Starting in 2017 the company expects to launch the "high volume affordable electric car," their third generation car platform, which is expected to equate with a BMW 3-series, offer 200+ miles electric range, and price out to $35,000 MSRP. Sales of that car is expected to be 200,000 units a year.

The corporate vision for sustainable transportation is also appealing, with fast charging stations that refuel 260+ miles of driving range in under an hour, are completely powered by solar panels, and are completely free to use.

In short, Tesla Motors has benefited from a string of excellent news and the market is reacting to that news. Perhaps irrationally. Only time will tell.