For over three years now, Tesla Motors (TSLA) stock has been on a steady climb. Though it has hit some significant lows, the overall trend has been a rise in price. No wonder some in the Street have repeatedly pounded the table, insisting investors should buy the name. While the excitement that is driving the longs on this stock is understandable, every investor owes it to himself to analyze the company rationally and carefully and get an idea in terms of equity’s prospects. That’s why I think there are a few things you would have to really ignore if you wanted to buy the stock.
Tesla missed its Q1 Delivery Estimates
Tesla had estimated that it would deliver around 16,000 vehicles by the end of the first quarter in 2016. Instead, the company delivered 14,820 cars. This is an under delivery of over 1,000 vehicles. For a company that is trying its best to start making profits, failing to reach its delivery goals by such large margins should get any investor concerned. As expected, soon after the news of this under-performance, TSLA went down.
Tesla Still Needs More Capital Injection
Tesla went public in 2010. Since then, it has struggled to keep operating without asking investors to inject more capital to keep it going. In just five years, the electric car maker has sought extra cash injections four times. As recent as August 2015, the company was out again in search for additional capital. Analysts predict that Tesla will become profitable around the year 2020. Now, if the missed deliveries are anything to go by, the company may have to keep asking for more funding further into the future than the company’s leadership had initially estimated.
Engineering and Manufacturing Difficulties
The leadership at Tesla has always presented the company as a futuristic car-making enterprise that is big on innovation. While this idea is what has largely helped the company’s stock to grow exponentially, its innovations have come with risks. Because of the business model it has chosen, making a Tesla vehicle is a complicated undertaking and often fails to meet the set deadlines. Tesla’s Model X is a good example of innovation getting in the way of business and sales. The release of the Model X was delayed because of what Tesla CEO Elon Musk said was “challenges” with the seat in the second-row. He noted that while model was a sculptural masterpiece, getting it right was not easy.
This engineering challenge seems to have affected the production of the car. Tesla revised its 2015 delivery estimates of the Model X to between 50,000 and 55,000 from an initial estimate of 55,000. At the end of 2015, the automotive and energy storage company met its revised estimates, but the numbers were still far from the initial estimate of 55,000. It delivered 50,557 Model X cars. The company also revised its monthly manufacturing estimates for fiscal-year 2016 to between 1600 and 1800 from its initial estimate of 2000 cars.
Tesla’s Valuation
Tesla’s price-to-sales ratio is of a significant concern. Compared to other automakers in the United States, its stock is quite expensive. GM’s price-to-sales ratio has a multiple of 0.3 while Ford’s stock price is 0.4 times its sales. Tesla’s ratio on the other hand is 8.75. It is quite clear that every investor is betting on Tesla’s future, hoping that the company’s fortunes will be similar to those of Google (GOOGL) and Facebook (FB). All the same, the automotive industry is quite different from the online space that Google, Facebook and other tech companies occupy.
Tesla shares were up almost two points to $227 and change in Wednesday trades. The $33.73 billion market cap Palo Alto, CA-based company is down 20.19% year-over-year, compared with an 2.25% gain in the S&P 500.
Rather a lame hit-piece…I didn’t see any of the positives which could offset though “negatives.” Here’s just a few…a “made in America” car that is currently the best selling EV in the world and taking serious business away from Mercedes, BMW et al, already over 100,000 cars on the road, safest and fastest sedan ever built, vast Supercharger network, own their own battery factory to manage technology and price relative to competitors (should any ever emerge), 400k pre-orders for new “mass market” model 3 (almost 2 years in advance of its release), poised to buy Solar City and offer “bundles” of car, solar system and Powerwall backup, currently being courted by India to put a plant there, close to arranging a plant in China…and so on. It would take a blind man not to see the tsunami that is Tesla “Energy” …way more than a car company (and that’s without teasing SpaceX or electric airplanes).