I have been watching Tesla for very long time just like many of you might have. I was fascinated by the idea of sleek looking electric car. The story of Tesla was legend in innovation and determination.
While I followed many development news, read the books about Tesla (TLSA) and its infamous CEO Elon Mask, one question has always come to my mind, is Tesla a stock worth to invest, or it is way too risky to even being considered?
So this is the first time I address Tesla in my blog after waiting for so many years.
Before jumping into financial aspect of Tesla, I’d like to discuss a rising topic:
Is Tesla a tech or car company, and why this question is important?
My straight answer is that, Tesla is a technology company, who happens to make electric cars. The way Tesla car is being configured, designed and thought out was a tech company at the core. People felt it was a crazy idea to build an auto company in California. It was crazy indeed if it was building a traditional auto company, but it is not crazy because at its core value, Tesla is a technology company. The solar panel manufacturing, the computer screen inside the car, each design is enabled by technology. A Tesla Model S has fewer than 150 moving parts, including the drive train, windows, controls, suspension and doors. A typical internal combustion engine car has about 10,000 moving parts.
The services that Tesla provides can be more of a proof as a tech company than auto company. They remote control the software and are able to fix a Windshield issue while you are sleeping and car parking in your own garage.
Downside of being a tech company to consumers?
The volatility it comes with. Due to the dependency to its high technology and being an innovator, Tesla had to overcome many obstacles and innovations to become successful. From the failure in auto-drive cases to sudden price move of Model 3 that frustrated buyers who were already in line for years, Tesla behaves like any other technology companies, unpredictable and shifting directions frequently. However, it is exactly this same nature makes high tech company unique and stands out of other industries. The changes are expected because market demand shifts frequently. In fact, if a tech company that does not like to drive the change or stay behind to resist changes, it will fail. This dynamic also is the driver of higher return because it is harder to sustain and takes guts to compete.
How has Tesla been doing financially?
Tesla has had signficiant revenue increase over the years with relatively steady loss. The way that Tesla can stay afloat is continue to growth capital to offset the deficit accumulated as chart below shows. It is a constant stretch on the needs of capital through equity. The pressure is high because it does not allow the failure due to mounting debt it is running through the years.
How about Tesla stock? Worth the risk?
Tesla is one of the most shorted stocks. 25 percent of tradable shares were sold because investors believe it was overpriced. Many analysts believe that Tesla could be bankrupt soon if it does not resolve the pressure of debt, which is burning mounting cash. Its infamous CEO Elan Musk recent behavior that triggered SEC regular exam on Mask certainly did not help.
Tesla faced many challenges including missing delivery targets. Investors went through roller coaster rides along the way. Just as the trade war with China started to escalate, Tesla recently announced to deliver Model 3 in China at least a week earlier than expected. The sales in Germany reached to next to Porsche.
Today Tesla (TSLA) announced that it failed to deliver expected numbers of vehicles with a quarter over quarter 31% drop. Market analyst reacted to this news very negatively and believed that it might be heading to downturn from now on as people are tired of hearing volatility to it.
Now let’s breakdown the key focal points in this news:
quarter over quarter sales drop: driven partially by rushed sales in the last quarter of 2018 because consumers want to take advantage of full $7,500 government incentives
failed to deliver the expected sales of 73,000 cars.
I am a number person as I believe number does not lie much. Quarter over quarter is not quite the best indicator at a lot of times because of seasonality. We all know last quarter of the year is the sales quarter due to major holidays. Comparing 4th quarter to 1st quarter of the year is not quite fair matrix. If you take a closer look at other companies, many company sales won’t beat 4th quarter status, but it does not get criticized because it is an understandable seasonal change. However, with Tesla, negative news tend to be picked up very quickly due to so many short position investors involved.
I would say though, missing expectation is a big red flag in the market because market stock price is a perceived value based on expectation of future deliverable. Per a vague statement from Tesla chairman Elon Musk, the issue was driven by logistic obstacle in China that limits the delivery of produced cars to the customers. Stock price did not agree with the news to say the least.
All the above don’t paint a good picture for Tesla. So what about the other side of this story?
Tesla has its advantages that we can’t simply ignore. The design, the cutting edge technology and environment friendly concept are all very appealing to new generation. When I sit inside Tesla to test drive, it was truly an experience that is even better than what I pictured in my mind.
Investment sometimes is not about the actual delivery, it is also about the gap to expectation. Being to set right expectation and deliver the expectation certainly is something Tesla can look into.
Now, is it worth to invest?
Here is my take. Tesla will be around for a while. Its appeal to certain segment of customers, myself included, will continue. The move with China production is smart and shows that it is on the right path of from limited high end luxury cars to mass production of electric cars. Elon Mask has shown extremely resilience to the challenges, although sometimes got caught up by personal arrogance, coupled with his naturally intelligent and dedicated personality, people want to see him to succeed as it is a symbol of perfect combination: science, technology and ambition. Innovation take vision and vision is hard to get aligned in the beginning of the journey because it takes time for people to see how each obstacle along the way to be solved. Tesla has it all and expansion of other markets will help to diversify needs.
So bottom line is that, I believe in Tesla and think it worth the risk for investors with high risk tolerance. The caution is that If you are still managing to clear your debt and saving for the first step of the investment, I don’t recommend it to you. You need more of stability in the investment before jumping to a high volatility stock like Tesla.
Having said my thought, Wall Street in general is very frustrated by Tesla due to ups and downs. Wall Street money does make an impact to the stock behavior. It reminds me of the Amazon old days. My belief is driven by the business model and leadership.
Now, over to you. What do you think of Tesla?