Tesla Is Still a 'Show Me' Story

Tickers in this article: GM TM TSLA

NEW YORK ( TheStreet) -- Yes, Elon Musk is a visionary. Yes, Tesla's cars are impressive. Yes, the company's stock is expensive.

For all intents and purposes, Tesla is still not profitable on a GAAP-adjusted basis. It earned a paltry $17 million in net income on a non-GAAP basis this past quarter but $17 million for a company that has a market cap of over $22 billion is simply not enough.

Non-GAAP financials exclude stock-based compensation and non-cash interest expense, while also adding back the deferred revenue and related costs for cars sold with a resale value guarantee. Meanwhile, on a GAAP-adjusted basis, the company actually lost $50 million last quarter.

Tesla shares are currently trading around $179. For the year to date shares are up over 19% but for the past 52 weeks they've zoomed up 158%.

The situation for Musk -- and Tesla shares -- is not likely to improve in the coming quarters to justify the company's sky-high valuation. For one, the company cannot simply operate on a scale similar to its competitors General Motors and Toyota .

In order for Tesla to get there, it will need to spend and spend and spend -- has already started with the planned $5 billion gigafactory. Although this will help the company over the longer term, it does not help it right now and will result in negative cash flow and lower earnings in the short term.

In the meantime, the company has stated that battery cell supply will still constrain production in the current quarter but should improve somewhat the following quarter. Tesla announced it has started a leasing program in the current quarter and will include roughly 200 cars to start due to lead times.

This might appeal to some new buyers who might not have considered Tesla before, but I don't think it will likely not impact upon the company's financials too much. In contrast to other automakers, Tesla will recognize this lease revenue over the term of the lease (GAAP and non-GAAP) since Tesla will not be able to sell the vehicle to an independent dealer as competitors do.

Another problem with Tesla: the cars are expensive. At a price of over $60,000 for the lower-end model (which includes a $7,500 tax credit) in the U.S., the company will likely not gain the same acceptance as competitors. Additionally, plans to introduce lower-priced cars between $30,000 and $40,000 will ultimately cut into Tesla's margins.

In the end, until Tesla achieves better economies of scale like their competitors, the bottom line will continue to suffer.

The market has continued to reward Tesla's shares, especially over the last year. However, Tesla's shares are among the most heavily shorted names in the market, with over 20% of shares outstanding sold short. So there are lots of other doubters.