Is the Tesla Euphoria Over?

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From a high of nearly $195 a share in late October, shares of Tesla Motors Inc. (NASDAQ: TSLA) have slipped about 30% in just over two weeks to close last Friday at $135.45. The shares were down another 5% in mid-morning trading on Monday.

The company has gotten a lot of bad publicity from three fires in its Model S sedan over the past six weeks. Add to that perhaps a sudden realization that the carmaker’s stock was overvalued. The company reported third-quarter results on November 5, and while they were better than expected, they did not blow the doors off. That is what investors have come to expect.

In a conference call, CEO Elon Musk said that there is too much demand for the cars and the company does not have the capacity to meet that demand. It is a case of reality trumping hopes. Tesla cannot boost sales and profits without boosting production, and as it ramps production, costs will rise and profits will be hard-pressed to stay level for a while.

Musk himself suggested that Tesla’s shares were overvalued. He certainly feels the pressure from high-end carmakers like BMW and Mercedes Benz at one end of the price spectrum and mass producers like General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F) and Toyota Motor Corp. (NYSE: TM) at the other.

The consensus price target on the stock has dropped from around $170 a share on the day Tesla reported earnings to $166 as of last Friday. That is not a huge change, but it is indicative of the direction the share price is pointed. Goldman Sachs recently raised its price target on the stock from $95 to $104 but did not change its Neutral rating.

Even at $104, the target is well below Monday’s trading price of around $129.50. Nearly 20% lower in fact. That is the cost of reality.