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Here’s Why Tesla May Have a Rocky Road Ahead

Telsa (NASDAQ: TSLA) has transformed into the Apple (NASDAQ: AAPL) of the stock market and its owner, Elon Musk, has that Iron Man, Tony Stark vibe to him. Barron’s correctly points out that Musk has a knack for seeing a huge need and coming up with a big solution where others turn away and look for something smaller. Paypal, Space X, and now Tesla Motors are prime examples.

The Telsa Model S is now the darling of Consumer Reports that ranked it not just at the top of its list but with top ratings of any car in its history. That sent the stock soaring. Despite the recent pullback to $102, Tesla is worth $3.4 million and is trading at more than 100 times forward earnings.

But Barron’s made another good point that should strike a little fear into the minds of Tesla longs. How mainstream can a $90,000 electric car actually become? Musk has a goal of cutting the price in half by 2016 but tens of thousands of dollars of the car’s cost is in the batteries. All of the battery experts point out that there’s no technology on the horizon that will cut battery costs by much more than 25 percent.

Cutting the price in half looks impossible but impossible is what ran the price of the stock up to the $100 level. The shorts believed it was impossible for Tesla to make inroads as a profitable automobile company. That’s normally reserved for companies headquartered in Detroit. But he did and that sent shorts running for cover.

Now, the short squeeze is over and investors want to know what’s next. If it trades on fundamentals, it has to retreat to a more realistic multiple. Apple’s products are priced at a premium but the public can afford them. Most people in the market for a new car couldn’t afford a Tesla even if they wanted to be in debt up to their eyeballs.

And why should Tesla make it in the electric car world when other companies that have been selling cars a lot longer, can’t? When the hype wears off, what happens?

This is what investors should worry about and their worries are real. Barron’s believes they are too.

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