Why Has Tesla Stock Taken a Hit?
What’s eating Tesla Motors Inc (NASDAQ:TSLA)? Investors were all but dumping Tesla stock on the first day of September. One of the reasons, and by all means not the only or even the most important one, was that sales of the “Model X” have come up rather short of their expectations. Stay tuned to for more references to short, when it comes to Tesla stock which was down about five percent on September 1.
No, it’s not a reference to the Napoleon-complex sufferers, who bought Tesla cars, succumbing to the temptation of showing off their green superiority. Despite the monumental 25-30 times price-earnings (P/E) valuation, Tesla stock continues to ride more on Elon Musk’s songs and dances rather than actual, solid, honest-to-goodness sales. Tesla sales are falling way behind expectations and, since time immemorial, that equation spells out lower earnings.
TSLA Stock Should Be Much Lower Still!
The current sell-off should be even sharper. It was exactly last September that Tesla launched the $100,000.00-plus “Model X” SUV for sale in the United States. It so happens that Tesla has still not shown anywhere close to the delivery numbers that one would expect after a year. (Source: “How Will Tesla Build 400K Model 3s If It Can’t Build 1K Model Xs per month?,” TorqueNews, September 1, 2016.)
This doesn’t just raise questions about the Tesla Model X. Indeed, given its price, the impact is minimal compared to information that will surely spread insomnia among Tesla shareholders faster than you can say “Zika.” Many of the original 26,000-or-so customers who placed deposits for a Model X have cancelled. Two-thirds of them are still waiting, even though the company’s “Model S,” the current bread-and-butter model, was supposed to have helped the Tesla factory resolve production glitches. (Source: Ibid.)
This carries major weight; given the expectations that the company has for its forthcoming “Model 3.” The market has even greater expectations for what the Model 3 will do for TSLA stock. But, based on recent history, the outlook for Tesla shares in the long run is dire; the kind of stuff that the Wayward Sisters of Macbeth might prophesize—and we all know how that play ended.
This morning, I heard a great Frank Sinatra song that captures how Tesla shareholders and customers might feel—their fates inching ever closer to meeting. The lyrics say: “When the autumn weather turns the leaves to flame; One hasn’t got time for the waiting game”. Indeed, how long will Tesla shareholders have to wait before all of Elon Musk’s promises materialize?
Marc Faber Pointed Out This About Tesla Last July
Marc Faber exaggerated by suggesting that TSLA stock is headed for the big zero-dollar level. (Source: “Marc Faber on Tesla and more”, CNBC, August 8, 2016.) But, if Tesla continues to face production issues, it just makes it easier for well-established car companies like Audi or Porsche to catch up quickly. Those companies know how to deal with production problems, and they have millions of loyal customers worldwide. It so happens that they are both working on direct competitors to the Tesla Model S, to be unveiled by 2020.
But the fact that Tesla Motors remains—with no real way to change this—a small-volume luxury car manufacturer is just the tip of what must be eroding the confidence of Tesla shareholders and Musk alike.
Enter the summer of 2016. Musk decides that Tesla Motors would buy the ailing SolarCity Corp (formerly trading as NASDAQ:SCTY), the largest producer and installer of solar photovoltaic panels in the United States. Last July, Musk also unveiled the great new Tesla plan, named “Part Deux.” It is a blueprint for a comprehensive development strategy for integrated solar solutions for buildings and transportation.
Many Are Wondering This About Tesla
The question many—and not just Tesla shareholders—are asking is this: given that Elon Musk’s ambition seems to have no limits, will he fulfill the oft-repeated platitude that he represents for the 21st century what Henry Ford and Steve Jobs were for the 20th? Both created immense wealth for their shareholders, but Tesla stock is way overpriced and is always teetering on the edge of collapse.
Will Musk really change the world? Or will he and his followers/shareholders be the first victims of the next bubble burst; that of renewable energy industries, often highly doped-up on government aid, subsidies, and fears of an imminent planetary crisis. All of these problems seem to have come together on this first day of September. Adding to the woes, SpaceX’s “Falcon 9” rocket explosion in Cape Canaveral will surely cause Elon Musk some major worries.
The markets are suddenly—some might say finally—nervous about the fact that Tesla will have to raise more capital to support production of the Model 3 and the “Gigafactory,” while also sustaining the acquisition of SolarCity. So many nouns, so many verbs, so little time and not enough cash to back it all up: what’s an Elon to do?
Not Everyone Thinks the Tesla/SolarCity Merger Is a Good Idea
They may have managed to hide their opinions before, but shareholders who objected to the SolarCity merger appear less shy now. On June 22, the day after Musk first unveiled the dubious plan, TSLA stock lost 11%. Now, as more details emerge about SolarCity’s accounts, Tesla stock started to drop. Can it recover, and how fast? That is the question. The short-term scenario is not good.
The SolarCity disclosure could bring to light many of Tesla’s contradictions, not the least of which is that it is a stock trading at a ludicrous multiple without ever having turned a profit. First order of business: Musk (chair and major shareholder of SolarCity) is a cousin of SolarCity’s founders Peter and Lyndon Rive. They apparently started to talk about merging as early as February 2016.
In essence, the possibility of a merger arose three months before the $1.4 billion capitalization, touted as necessary to support the production of the Model 3. In addition, the document shows that the same Tesla board had initially rejected the proposal, to reconsider it at a later time. The two revelations have raised doubts among analysts, who are now throwing around the word “credibility” or the lack thereof, where Tesla is concerned. (Source: “Tesla plans to raise funds this year to tackle cash crunch,” Reuters, August 31, 2016.)
The New Tesla Plan: A Disaster For Shareholders
That aside, SolarCity has debts of over $3.0 billion. If the merger is approved (the shareholders of both companies will vote on September 14), the next capital increase will have to be spread among cleaning up SolarCity’s accounts and moving production along at Tesla, all while Musk worries about SpaceX.
The new Tesla plan is based on the combination of solar roofs with integrated photovoltaic cells (not panels installed on roofs), domestic storage systems (with the “Powerwall,” a domestic lithium-ion battery), and finally, electric vehicles with new batteries (from 65 to 100 kWh, with 450 km of autonomy) and a mid-price sedan, the Tesla Model 3. California is the testing ground for this new order; but it seems more like a revolution of the rich. The model is Californian by its very nature, since it needs reliable and predictable sunshine.
The plan also relies on detached housing in the suburbs of major cities. New York City and Seattle don’t fit this picture. That makes it an overly expensive model today, at least in terms of investment. Ultimately, the California model is probably suitable for wealthy households in the suburbs of San Francisco and Hollywood, where stars of the dotcom sector and the movies can bask in the shadow of their self-satisfied environmentalism. But those in the ghettos of Los Angeles, the Bronx, downtown Delhi or Beijing will not gain an iota.
Musk enjoys a rockstar-like following. His crowd of supporters will sustain TSLA stock. But the more realistic investors concerned about such outdated concepts as earnings might want to adopt a more Faberian line (Source: CNBC, op cit.). In other words, there are too many players in the car industry. They are all getting ready to include various types of electric vehicles in their lineup, which will easily out-compete Tesla. Add to that the sand on which Tesla’s huge valuation is built and you might see the bear cub staring right at you; watch out for mommy bear!
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