In the interests of full disclosure, I am effectively short Tesla (TSLA); I am long the July 85 puts, which I bought a few days ago when TSLA was trading more than $4.00 cheaper than it is trading today. So I am talking my position, and, so far, it is a losing position. Certainly, I don’t think it will ultimately prove to be a losing position or I would have dumped it. And I’m not writing this in order to provide a better opportunity to dump it. Further, as I have said ad nauseam on this blog and in other forums, markets and stocks are notoriously difficult to call, so I never put any kind of real money into trades such as this TSLA trade. I do it for the intellectual challenge, for fun, and to focus my thinking, largely so that I can write more effectively and entertainingly on such topics.
A lot of, but certainly not all, the “experts” love TSLA because, among other things…
· Motor Trend and Consumer Reports love the Model S, the company’s flagship electric powered sports sedan
· The company, using some of the proceeds of a $1 billion stock deal, paid back its $452 mm federal loan, making it the only U.S.
· In some people’s opinions, electric power is a promising, if not the promising, propulsion system for cars in the future.
Some analysts have come up with ratios, such as market capitalization per vehicle produced, that show that TSLA is wildly overvalued relative to any other car company on earth. But even these observers, who are usually, but not exclusively, bearish admit that these are irrelevant, perhaps even foolish metrics. Yours truly does not like TSLA for a variety of even simpler reasons.
The Tesla Model S combines the downside of all electric powered cars (range anxiety and the negation of the automobile’s perhaps most attractive attribute, freedom of mobility (See my 5/9/13 piece, NISSAN LEAF: WHY GASOLINE? I’LL TELL YOU WHY GASOLINE!) with a $70,000 base price tag. Thus, TSLA produces a car that few people want that even fewer can afford. This is a recipe for success?
A less expensive Tesla model is planned, but not for launch until three or four years from now. Further, after paying back the government, TSLA doesn’t have the cash to develop the more, but not quite, popularly priced car. Unless it sells a lot more cars, produces a lot more cash flow per car (which would perhaps involve increasing the already astronomical price), or can convince more investors of its vast potential, TSLA may be a one or two (if it comes through with its planned Model S based SUV, as seems likely) product, boutique car company. And even if it could do another big stock deal, or co-founder, Chairman, and CEO Elon Musk comes up with more equity, would such dilution be good news for existing holders?
Bullish analysts point out that Tesla is a supplier or potential supplier of electric car technology to other car companies. Great…TSLA can sell technology for a car that few want and/or can afford to companies who will find few customers to buy such cars. There is also the argument that someone could buy out TSLA, which is always a possibility. But one wonders about the business case for buying a company that produces a car few want and fewer can afford. Maybe a GM, Ford, Toyota
One can’t help but believe that much of the appeal of TSLA to Wall Street is that the Street is inhabited by people who can afford to spend $80,000 and up (Who wants a mere base model at $70,000?) to trumpet their green bona fides. The rest of us have better sense. And that sense tells us not only that even an “extended range” (200-265 miles at a steady 55, a concept with which not only yours truly is completely unfamiliar) car like the Model S makes no sense, but also that we couldn’t afford it even if it did.
The same common sense tells us that a stock that has more than doubled in just over a month’s time (On 4/17/13 , the stock closed at $45.45; it closed today (5/23/13 ) at $92.73. Exactly a month ago, 4/23/13 , it closed at $51.01.) is discounting a LOT of good news, probably a lot more real good news than TSLA is providing.
TSLA: $92.73
S&P 500: 1,650.51
Dow 15,924.50
