Tesla (TSLA) Stock Looks Like Something Out of 1999

This is a post I started to write last week, got sidetracked and now it seems a bit timely once more. I’m talking about Tesla Motors (NASDAQ:TSLA), the electric car manufacturer, and frankly I don’t see what the hype is about, why the stock has gone through the roof and why anyone would buy into the secondary offering at these prices.

Let’s start with the business. Tesla makes an electric car, specifically a high-end fairly expensive electric car. Fans rave about the fit, finish and the performance. The reviews from the automotive press have been no less effusive. Fair enough, the company has managed to build a beautiful piece of machinery. But it’s a piece of machinery with a fatal flaw – it can’t go very far with out stopping for a long time to recharge. The now infamous NY Times article about a road trip in an earlier model highlighted the challenges of operating an electric vehicle outside of a fairly limited box. But let’s leave the discussion about the utility of electric vehicles to another day, this is about the financial and stock performance of the company.

There was a lot of oohing and aahing about the Q1 results the company announced last week. The company came in with earnings of .12 cents a share and sales were up to $562 million. All impressive but they still so far as I can see aren’t producing automobiles profitably. Gross revenues included $6.6 million from the production of power trains for Toyota and $67.9 million in zero emission vehicle credits (ZEV from now on). From the 10Q it appears as if they exclude the Toyota payments from automotive sales but include the ZEV credits. Take out the ZEV credits only and you’re looking at a loss of around $56 million.

So all of this sent the stock soaring.

Now the initial explanation for the pop about a week ago was that there was a lot of shorts and the earnings report had them running for cover. The numbers don’t lie, more than 40% of the stock  is sold short. That made a lot of sense when the stock popped after earnings came out but I can’t believe that it’s the whole story, particularly when Morgan Stanley raises its price target from $47 to $103. There’s mania here, folks.

Now Tesla’s management group is not made up of a lot of fools, so they took a look at this and figured out that if people were willing to pay this much for a share of the company they should just sell them a lot more. Thus, today, they announced the sale of an additional 2.7 million shares plus $450 million in convertible debt. And that is why I decided to write this deferred little missive.

I’m going to suggest to you that anyone who subscribes to the new stock offering at any price near the current level deserves our pity. This is a company that produces a product that has a market a mile wide and an inch deep. It is not yet profitably producing automobiles and there is reason to doubt that the vehicle can perform up to specifications outside of optimal operating conditions. The real value of the stock is opaque due to the short interest. What’s to like?

Tesla probably has a good chance of surviving and probably will carve out a nice niche for itself in the luxury market. I hope it succeeds but right now the stock looks like something out of 1999. We were supposed to have learned that the fundamentals matter and the hype is nothing more than that.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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4 Comments on Tesla (TSLA) Stock Looks Like Something Out of 1999

  1. Delusional missives with 20th century mentality. This company is using the regulatory environment in which it lives. Gnashing your teeth and dismissing them is like ignoring extraction credits that oil and gas benefit from.

  2. Cars like this Tesla and the leaf; volts and other hybrids are an evolution in the auto industry, I hope Tesla and other electric car manufacturers do well and become more affordable.

  3. “frankly I don’t see what the hype is about, why the stock has gone through the roof”

    Again, why we should listen to your expert opinion?

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