Tesla Driving Off The Cliff? (Chart of the Day 9)

Reality At Odds With Tesla Hype

Investors in Tesla (TSLA) have bought into the growth story and “vision” of founder Elon Musk.   So have drivers.  There is no shortage of glowing reviews of Tesla’s models: The luxury model S (https://www.consumerreports.org/cars/tesla/model-s/2018/road-test) and the SUV model X. (https://www.caranddriver.com/tesla/model-x).

Both have starting prices near $80,000 which can easily grow to more than $150,000.  The upgraded battery packs which extend the cars range from about 250 miles to 330 miles nearly double the price.

Investors and drivers have been anxiously awaiting an AFFORDABLE Tesla.  In 2016, Tesla unveiled its Model 3 (Gen III) at a proposed price of $36,000 to reach the mass market. Musk’s projections of sales growth, as illustrated in the Chart above, require a car for the mass market.   (https://insideevs.com/tesla-annual-sales-hit-500000-2020/).

Musk’s various rosy forecasts, however, have generally fallen shy.

The Model 3, for example, STARTS at $49,000. The most basic options can add more than $10,000. For example, any color, other than black, is extra.  (https://www.caranddriver.com/reviews/2018-tesla-model-3-test-review).

Valuation Questions Draw Short Sellers

Tesla’s valuation reflects a SUBSTANTIAL premium to other automakers:

Company              Market Cap            Latest 12mos. Revenues         Price/Sales          Percent of Shares Sold Short

Tesla                             $54.5 B                                $ 17.5 B                                          3.95                                        15.93%

Fiat/Chrysler              $23.4 B                               $132.3 B                                          .20                                         0.46%

Ford                              $32.1 B                                $159.9 B                                         1.02                                        2.44%

General Motors          $47.0 B                                $146.4 B                                          .92                                         1.93%

Honda Motors            $47.3 B                                $142.9 B                                          .65                                          .02%

Toyota                         $169.4 B                               $271.2 B                                          1.14                                         .03%

Source: (https://www.yahoofinance.com).

Tesla’s valuation, second only to auto Giant Toyota, has sparked intense debate. Proponents cite Tesla’s unexpected profitability in the third Quarter as evidence that the value premium is justified.

After years and Billions in losses, Tesla reported a profit of $312 Million for Quarter ended September 30th, 2018.  Revenues were $6 Billion, nearly triple the year before.  That marked Tesla’s high point.   A variety of problems within the company, however, are growing.

Musk’s Strange and Illegal Behavior

Elon Musk has been controversial to say the least, but many have questioned his behavior.   On August 7th, Musk tweeted that he had secured financing to take Tesla private at $420 per share.  This tweet got repeated several times.

Musk’s tweets were a direct violation of securities laws governing stock manipulation.  As a result, an SEC investigation ensued which was settled on September 29th.  Under the terms of the settlement, Musk agreed to pay $40 Million in Fines, step down as Chairman and appoint 2 additional independent directors.

On a podcast with Joe Rogan, Musk smoked marijuana, an act which risks the loss of federal contracts.   The phony “going private” tweets, which used the figure 420, had apparently been a joke and reference to cannabis. (https://www.vox.com/business-and-finance/2018/9/8/17834910/elon-musk-joe-rogan-podcast-tesla-stoc).

Inventory: The End Of The Tesla Waiting List

Central to the stock’s appeal and elevated value was the belief that Tesla could sell every car it produced.  Early buyers not only paid a deposit but waited months or longer for deliveries.   Slower-than-expected production increases, especially of the Model 3, contributed to the “waiting list” of drivers awaiting receipt of their vehicles.

Last week came two reports, which cast a much dimmer light on Tesla’s prospects.  First was a disclosure that the Company had built an INVENTORY of 3300 Model 3’s in the US. (https://www.zerohedge.com/news/2018-12-31/tesla-slides-report-over-3300-model-3s-inventory).  No backlog of orders, no infinite demand and no more Waiting List.

A few days later,  Tesla reported that deliveries of Model 3 had fallen short in the 4th quarter.

In addition, under the terms of the Federal Tax Credit, each buyer of electric cars received  $7500 in tax rebates.  The subsidy HALVES after sales reach 200,000.  Tesla, which just reached that milestone, cut prices by $2,000 per car to partly offset the reduction in tax credit to $3750.

The halving of federal subsidies reduces a program that has put $1.5 Billion (200,000 cars times $7,500 per car) in the hands of Tesla buyers. Whether Tesla can stand on its own remains to be seen. Tesla delivered 70,000 cars in its “profitable” third quarter generating $525 million in credits (70,000 cars time $7,500 per car) or nearly TWICE its reported profits.

Tesla’s Diminishing Brand Name

A slew of missteps and lawsuits have dogged Tesla.  The autopilot has malfunctioned on several occasions triggering lawsuits. (https://www.greencarreports.com/news/1119663_another-owner-sues-tesla-over-autopilot-rear-end-crash).

Musk’s overly optimistic production forecasts are the subject of a criminal lawsuit being brought against the Company.  (https://www.extremetech.com/extreme/279641-tesla-faces-criminal-probe-over-model-3-production-claims).

Tesla faces yet more challenges.  Jaguar, Audi and Porsche are planning to release luxury electric cars in 2019.  Until now, the Model S and Model X have had no real competition.

Tesla’s stock closed at $317, down 17% from all time highs of $380.  That’s a lot to pay for a company that may not be able to survive without government subsidies.   Will Tesla’s stock satisfy all the short-sellers and head over the cliff?

Don’t join Tesla.  Be Informed, Not Misled.





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