Where Does TSLA Stock Go from Here?
Tesla Motors Inc (NASDAQ:TSLA) is one of the most controversial companies in the world, although I’m not quite sure why. To me, the value proposition of owning TSLA stock seems quite straightforward, but others would seriously disagree.
Don’t me wrong; I don’t mean to say the company or its shares are invulnerable to harm. There is a very real possibility we could look back on Tesla as a failed experiment, but that’s not the argument you hear most often from the company’s critics.
These bears are valuing Tesla using all the wrong metrics. They presume that it is like all other car companies when, in fact, Tesla is more like a technology startup. They rage against its use of government subsidies, the “limited” driving range of its cars, and its reliability issues.
But most of all, naysayers point to Tesla’s negative earnings as proof of impending doom.
Defining Success on the Road
So let’s start with the mother lode: Tesla’s cash burn problem. The company is perennially in the red, which critics argue is proof that Tesla can never compete with the likes of General Motors and Ford.
One veteran of the automobile industry, Bob Lutz, said as much in an essay detailing Tesla’s flaws: “If I were sitting in Musk’s seat, I would take an urgent look at cutting cost,” he said. “At some point, they’re not going to get any more money.” (Source: “Is Tesla Doomed?” Road and Track, October 26, 2015.)
Lutz’s point was that markets will lose faith in Elon Musk and Tesla if the company continues to fail to deliver profits. Making automobiles is a cash-intensive business, which is why almost a century has passed without a new car company joining the pantheon of great American carmakers.