Is This Good for Tesla Stock (TSLA Stock)?
If you read this publication often, you probably know that I’m a big fan of both Elon Musk and Tesla Motors Inc (NASDAQ:TSLA). However, I don’t let that bullishness on Tesla stock (TSLA stock) blind me to the fact that CEO Elon Musk misses deadlines like Shaquille O’Neal used to miss free throws.
It’s not that Musk doesn’t get there in the end. He usually does, but only after missing a few deadlines along the way. His companies (Tesla, SolarCity Corp (NASDAQ:SCTY), and SpaceX) have, in the past, failed to meet delivery expectations, production targets, and profit timelines.
I never considered these delays anything more than minor road bumps on the way to a brilliant future. Elon Musk may have been a little too eager in his timeline, but Tesla had the capacity to get there. I knew that much, so it didn’t curb my enthusiasm for TSLA stock.
Markets weren’t as forgiving. Investors punished the electric car-making company, which is why Tesla stock hasn’t fared so well in 2016. Its output was behind schedule for a few quarters, which led to a loss of faith in TSLA stock’s ability to scale up.
But maybe it wasn’t entirely Musk’s fault. Maybe, just maybe, building sleek and sophisticated electric cars is extremely difficult. If you don’t buy that argument, I suggest taking a closer look at what happened to a billion-dollar Tesla-rival this week.
Faraday Future (otherwise known as Faraday & Future Inc)—the Tron-like electric car company that’s supposed to topple Tesla—apparently needs more time before it can get its cars on the road. No, you didn’t misread that. This electric car company hasn’t even built a roadworthy car yet, and it’s already having production delays.
Analysts were quick to crown Faraday the supreme Tesla alternative when it premiered at the Consumer Electronics Show (CES) this past January. Needless to say, I was a little more skeptical. (Source: “Faraday faces electric car delay as Chinese backer stalls,” Financial Times, November 24, 2016.)
Here’s what the company showed off at CES 2016:
Yes, this Batmobile-like concept car was the cornerstone of Faraday’s hype. It wasn’t intended to ever set wheels to pavement, but the company promised a more practical model at the CES show in January 2017. It also said that Faraday cars would be available to buy in 2017.
As it turns out, both those promises may have been oversold.
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According to a new report in the Financial Times, sources close to the firm doubt that a prototype will be ready for January. But, even if Faraday manages to meet the CES deadline, it certainly won’t deliver any cars during 2017, say the Financial Times sources. (Source: Ibid.)
Faraday is also in financial straits. The company’s financial backer—a Chinese conglomerate that has poured hundreds of millions into the electric car venture—is having some serious cash flow issues. Worse still, these cash flow problems are directly related to Faraday.
Markets pushed Tesla stock up 1.82% during Friday’s shortened trading hours as investors digested the news. For me, it was a validation of everything I’ve been saying.
Elon Musk doesn’t miss deadlines because he’s pathologically unpunctual; it’s because he’s at the leading edge of technology and innovation. People forget that there is no roadmap for building a successful electric car company. You know why? Because no one has ever done it before.
Musk is the first person to break through that wall. And, to borrow a great line from Michael Lewis: “The first guy through the wall always gets bloody. Always.”
So it’s no surprise that markets vented their anxiety on TSLA stock, but hopefully this episode with Faraday reminds them that building the future is difficult work. A few months of delays shouldn’t be that big a deal. Just look at how TSLA stock performs over the long term; that’s what I say.
Look at the fact that Tesla made more money in the last quarter than all U.S. oil companies put together. (Source: “Tesla made more money last quarter than the entire US oil industry made last year,” Elektrek, November 10, 2016.)
If you told anyone that would be possible five years ago, they would have laughed you out of their office. Those are the same folks betting against Tesla stock right now. They don’t understand that new technology companies will always face unforeseen complications.
That is the nature of their business. Waiting them out is not for the faint of heart, but anyone willing to grit their teeth might make a fortune.