Tesla’s Cars May Be Amazing, But the Company Sure Isn’t
Tesla has been in the car business for 15 years, now, and has lost money in all 15 years. Investors are starting to ask themselves when this will all end, but it’s probably not now.
It might seem odd that Tesla has three of its models designated by a letter, the S, X, and now Y, and one with a letter, the Model 3, but there is a plan here. Tesla wanted to call the 3 the Model E, but that was already taken, so they had to settle for 3.
This ends up spelling S3XY, which is pretty close to what they wanted at least, but might remind us of how kids used to use calculators, when they first came out, to spell Shell Oil when you turned them upside down. Perhaps CEO Elon Musk was among these kids, or it would seem anyway.
Musk is in many ways just a big kid, perhaps a much more intelligent version of Jethro Bodine of the Beverly Hillbillies, He does share some qualities with Jethro, the tinkering with bold ideas about cars, efforts to go to space, a lesser focus on practicality, along with the refusal to be grounded by traditional thinking. We do need people like this though, people who are not scared to be innovators, and Musk certainly does not have much fear here.
Tesla has made Elon Musk fabulously wealthy, with a net worth of over $20 billion, but he’s far from your average billionaire. He seems to have more fun with his wealth than most people with this much money, and when we watch how excited he gets showing off a car like his new roadster, which will be the world’s fastest production car, the kid in him really shows.
Whether he will ever make money from this toy doesn’t seem to matter much. Musk has been lifted up upon the shoulders of his investors, and if Tesla were to be valued as a privately held company would, well they have done nothing but lose money year after year, so taking Tesla private, as Musk recently pondered doing, seeing his stock being valued purely by business performance, would be a huge mistake.
Major shareholders take companies public to get a big payday, and it’s not that going back to a public company is always a bad move, but certainly not in this case. Perhaps it was a big enough mistake to cause Musk to have second thoughts, but this is how high his threshold is and how far he is from those with this much money who guard it much more jealously. He just doesn’t seem to care anywhere near as much, which might be a good thing in some ways, but has its dark side as well.
This looseness of attitudes is not at all what investors like to see in a CEO though, and they especially don’t like to see what has been so far a huge money pit. Electric cars may be more exciting, and Tesla now sells more of them than anyone, but at some point, a company needs to make money as well.
When Will This Company Ever Make Money?
There was some hope last year that this would all turn around and they would actually get their first year out of the red, but in spite of two quarters of positive earnings, Tesla still lost almost a billion dollars in 2018. Sales of their more modestly priced Model 3 have been good, but not good enough.
Analysts expect another losing quarter, and there does not seem to be a good reason to think otherwise. Eventually, this all has to catch up to you. It sure did with the dot-com bubble of the 1990’s, when investors bid up tech start-ups, some which were not making any money yet, but this didn’t take long to come tumbling down.
Tesla has been doing this for a lot longer though, an amazingly long time actually, and longer-term investors surely have had their excitement muted by the sheer lack of success that this company has had. No one is really sure if and when this will really turn around for good, even though Musk promises that their new Model Y will outsell all their other models put together when it hits the streets in late 2020.
Musk is famous for his optimism though, what some call the tendency to overpromise and underdeliver, so analysts are thinking that they might be lucky to see this being sold in late 2021, or even later, based upon the delays the company had with the Model 3.
The announcement of the Model Y that we just saw from Tesla was hoped to create some real excitement about the company and the stock. Instead, it was met with a loud round of boos from investors, sending it down 5% further on Friday, and adding to its recent misery.
Tesla’s Stock Performance of Late Has Been Particularly Disappointing
Tesla stock has not performed that well since the first half of 2017. Nearer-term performance has also been pretty ugly, with Tesla down 27% over the last 3 months, with the Nasdaq moving very nicely in the other direction. Tesla has moved up and down like a yo-yo and is in the bottom end of this range now, but there isn’t that much to suggest it might break this cycle.
If, according to Musk, the company’s most exciting and potentially profitable model gets announced and their stock gets a spanking for it, this simply isn’t good. When you add in an earnings outlook that isn’t good, and their bonds being rated as junk, with rates to match, their skies are anything but blue.
Tesla does have some support on the charts only about $20 a share lower than here, less than 10% away now, but we also need to wonder whether or not investors will be so eager to step in and buy it enough to bounce off this level once again. Even if they do, it’s hard to imagine this stock going very far anytime soon.
We might think that Tesla’s status as an electric car pioneer may serve them well in a future where the electric car is expected to be king, but we might actually see the opposite effect.
As more and more car companies look to make the transition to electric cars, the competition will just get more and more fierce, and we might even see Tesla having to finally give up their dream of being a major car company and focus more on niches such as super expensive performance cars or their supporting them with batteries if they can remain competitive in these markets. If they cannot make money when they have this market pretty much all to themselves, this will be all the more difficult when their more successful and well-heeled big brothers take a seat at this game.
In the meantime, this stock can still be traded by those who are looking to surf Tesla’s significant waves, traders who would be on the short side during this current move, but investors who are in for the longer haul need to give holding this stock right now some real pause for thought.
Editor, MarketReview.com
Robert really stands out in the way that he is able to clarify things through the application of simple economic principles which he also makes easy to understand.
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