Tesla Motors Inc: Time to Bail on TSLA Stock?

More Downside for TSLA StockMore Downside for TSLA Stock?

Elon Musk, the inspirational leader of Tesla Motors Inc (NASDAQ:TSLA), seems to love attracting the headlines and telling the market how TSLA stock is a technology play and not simply an automaker.

So, in a big surprise that came out of nowhere, Tesla announced it would pay $2.8 billion to acquire money-losing and battered SolarCity Corp (NASDAQ:SCTY).

I get that TSLA is adding to its technology portfolio, especially in the alternative energy segment where Tesla is trying to push sales of its home solar battery. Yet what’s confusing is why Tesla is making the acquisition of SolarCity now at a time when the company is trying to ramp up sales of its vehicles with the “Model 3” coming online soon.

Elon Musk is optimistic the merger will eventually result in a trillion-dollar company. Of course, this can happen, but it will be many years away and only if Tesla can deliver.


The reality is that Tesla should be focusing solely on its car business and trying to ramp up production over the next five years or so.

This will require massive cash infusion and given that Tesla currently has net debt of around $2.0 billion and is adding another $3.0 billion of debt from the balance sheet of SolarCity, the deal makes little sense at this time.

SolarCity has a great solar energy systems technology and it seems like Musk wants to expand into this segment.

It may all work out years from now but I remain a non-believer in Tesla stock at this time, especially since it is trading at a current market valuation that is excessive.

In my previous look at TSLA stock in May, the stock was trading at $217.00 and I commented that I “feel TSLA stock is overvalued.” Prior to that, I was bearish at $268.34 and $251.00 in my other commentaries. TSLA stock traded at $194.00 on Thursday.

tesla motors stock

Chart courtesy of www.StockCharts.com

Some may question my thinking. The reality is that I love the Tesla car but feel the market valuation and direction, especially after the SolarCity bid, makes it a tough sell for investors.

Consider that long-time Tesla bull and cheerleader Morgan Stanley analyst Adam Jonas has come out and expressed his displeasure with the SolarCity strategy.

Jonas cut his rating on TSLA stock from “Overweight” to “Equal Weight” and slashed his target price to $245.00 from the previous $333.00. (Source: “Elon Musk Just Lost His Biggest Fan on Wall Street,” Bloomberg, June 23, 2016.)

The article stated that Jonas didn’t think the SolarCity addition would help Tesla at a time when the company needs cash for its car unit.

So here we are. After exciting the market with Tesla’s “Model 3” news, it seems like investors are simply tuning out Elon Musk. I wouldn’t be touching Tesla stock.