Tesla's (TSLA) Current Valuation Suggests Continued EV Market Dominance

Tesla Motors (Nasdaq: TSLA) is trading lower Friday amid cautious commentary from the WSJ.

While Tesla's Model 3 is expected to allow the electric automaker to generate consistent free cash flow, shares still look rich versus the company's peer segment.

Tesla has an early advantage in that the Model S has been very well received and its expected the the Model X will see similar accolades, but the company needs its competitors to keep at the electric vehicle game in order to keep on its trajectory. Names like General Motors and Nissan have stepped up to the plate with EVs and hybrids and, while sales in those segments haven't been earth shattering, the companies continue to commit resources aimed at improving their respective vehicles.

On valuation, analysts are looking for Tesla to generate $18 billion of sales with earnings of $11.37 per share in 2019. That implies a current valuation of 21 times expected earnings, which is three-times as high as segment peers.

The Model X will be a key component with Tesla for another reason: cash. While the company raised around $738 million with its latest equity offering, cash burn for the first-half of 2016 is estimated to be $1 billion.

Overall, the WSJ believes that current levels of valuation indicate that rivals won't gain too much ground in the EV segment versus Tesla, which is a tall order to handle.

Shares of Tesla are up 0.3 percent.

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