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Tesla: What a Difference a Week Makes

Wednesday, 7 Jul 2010 | 10:28 AM ET
Tesla Model S
Source: Tesla Motors
Tesla Model S

A week ago, Tesla investors were riding high, telling me and many others, "See, this stock is gonna do great."

Their euphoria was understandable since shares of TSLA priced higher than anyone expected at $17 a share and took off from there.

At one point, TSLA shares traded for more than $24.

I got more than a few e-mails from people saying me and Jim Cramershould eat crow for doubting TSLA.

A week later, I'm wondering what those people are thinking now?

Shares of the electric car company have pulled back to under $16. The meteoric rise has given way to the reality that many investors sold the stock when it took off and were not going to wait around for it to come back, as it did rather quickly.

I don't think Tesla is plunging down to $0 . Nor do I think it's a terrible company with no growth prospects. I do think many of Tesla's fans need to separate their emotional investment in the company from their financial investment.

Here's what I'm talking about. A friend of mine was talking about TSLA shares taking off and he said, "I love the S Model. Gorgeous car. People are gonna love it." When I mentioned that the S has not yet been built, and that there are plenty of questions about getting it to market, he said, "Sure, but it's so good looking."

This epitomizes what I'm talking about with many Tesla investors that I hear from. They think the Roadster is great; therefore the company is a great investment. Sorry folks. That's a recipe for a financial disaster. You should be asking yourself, "What are the prospects for Tesla becoming profitable? Will it be able to get the S to market and make money on it? Will the electric car market develop at a decent pace?"

These are legitimate questions and ones that people are asking now that the initial rush of the IPO has subsided. They are also questions Tesla fans should be asking. It doesn't mean you have to temper your enthusiasm for the company. It simply means that you should realize Tesla has a long road ahead of it, and while it has promise, it's still unclear when it will have profits.

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___________________________ Questions? Comments? BehindTheWheel@cnbc.com

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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