I’d like to preface this by saying: I am NOT a naysayer when it comes to electric vehicles. Quite the contrary — my family loves our electric SUV, the Audi e-tron. My son recently drove it from Palm Beach County to Key West, Florida, and had a good experience charging at an Electrify America station. I’m also one of the first in line to get the Porsche Taycan.
But there is no way I’d buy stock in Tesla (TSLA)…a company that is “building the plane as [it’s] trying to fly it.”
Those aren’t my words — that’s how one of its own employees described the situation after getting caught in Tesla’s mass layoffs in January.
And I wouldn’t dismiss that as just “sour grapes.” There are numerous other signs that Tesla isn’t living up to the hype. (And I’m not just talking about yesterday’s dismal quarterly report.)
I’d like to review these red flags with you today. Prominent firms like Piper Jaffray are out there trying to get you to buy TSLA shares…but we at Growth Investor know better. The closer you look, the more dire things appear.
1. Getting away from its roots
If there’s one thing Tesla has going for it, it’s the Model S — the beautifully appointed luxury model that made Tesla a household name.
Now that TSLA has hit rocky terrain…you might think that the company would fall back on what it does best. The only problem is that competitors like Audi, Jaguar Land Rover, Mercedes and Porsche are starting to show that they can do it just as well. What’s more, my Audi e-tron was $60,000 less than Tesla’s equivalent SUV, the Model X. That is the real problem.
In response, Tesla decided to produce fewer of the Model S and Model X.
That pretty much leaves the more affordable Model 3 as Tesla’s bread and butter. While an attractive car, the Model 3 has not been a good venture so far. The car is characterized by quality problems and poor internal design that complicates manufacturing. Sure, it is selling well, but after reducing the price by $1,000 and struggling to produce, the Model 3 is just not profitable.
It is very disturbing how Tesla cannot make money with record sales.
2. Dysfunction in the family
It is also disturbing to hear some of the latest promises from CEO Elon Musk.
For example, Musk said he will push to make the Reno battery plant more efficient. Well, I have an office, home and employees in Reno. And I know all about how the Tesla battery plant expansion was stopped over a dispute with Panasonic. Now Tesla is trying to get folks excited about moving battery and vehicle production into China.
Musk may say it’s because there’s so much “opportunity” in China. He’s not wrong about that. But the perception in Reno is that this is really about trying to survive long-term.
Elon Musk is not well respected in Reno, since he is famous for unreasonable demands and firing folks. My friend that set up the Reno “Gigafactory” quit over constant redesigns, as well as the way Musk would personally belittle employees while demanding the world.
3. Endangering customers
At one point, 8% of the batteries from the Gigafactory were bad and dangerous, according to this friend of mine.
This is a perennial problem with the lithium-ion batteries that power everything these days. Everyone remembers Samsung’s “exploding phones,” the Galaxy Note 7, and how airlines banned them. And in electric cars, extreme acceleration can cause overheating. But while competitors are investing in developing new technology – Musk keeps doubling down on lithium-ion.
Audi and Porsche are, at least, keeping acceleration at safe levels for the battery. But with Tesla’s “ludicrous mode,” the rapid acceleration quickly overheats the car (and shortens the battery life). The result is numerous instances of Teslas catching on fire.
For its part, Volkswagen rejected the dangerous “round” lithium battery cells that Tesla continues to utilize. And VW Group has made it its mission to surpass Tesla’s market share – with superior vehicles.
Bottom line: Unless the China venture works, Tesla will run itself out of business trying to compete with the big boys.
I predict that TSLA will crash, the market cap will fall from $40 billion to below $10 billion, and what’s left will get bought out by the Chinese parent of Volvo, Geely Auto Group. Here’s where I’m focusing instead.
Now, while I like to think I’ve developed pretty good instincts, after 40 years in the markets…I’ll freely admit that there’s more to investing than the subjective factors I mentioned.
So, let’s take a look at the numbers!
A Peek Under Tesla’s Hood (So to Speak)
If you’re at all familiar with my Portfolio Grader, you know that there’s a few quantitative measures I use to assess and compare stocks. Namely, I look at fundamentals: earnings (or lack thereof), sales growth, margins, and the like. I take the temperature of analyst opinions on the stock. And I see if the stock is enjoying good institutional buying pressure.
As for the earning results, let’s just say Tesla is still writing checks it can’t cash.
When asked about ramping up Model 3 production (to get out of its hole), Musk is promising to make 8,000 cars per week, and eventually 15,000. That’s more than twice what it produces now. (And, again, the cars are not reliable.) In the meantime, Tesla’s quarterly revenues and earnings both fell short. In fact, Tesla is still operating at a loss of $1.12 per share. Analysts had expected just -$0.40.
And here we see how TSLA stacks up in my Portfolio Grader overall:
This basically lets us take TSLA’s temperature, long-term. And what we heard yesterday is part of a bigger trend. While Tesla is selling cars, it’s struggling with margins and profitability. Once beloved on Wall Street, analysts are now forced to continually lower their expectations for Tesla and its stock.
Maybe you have a Tesla; maybe you love it. But given everything we see today – there’s no way I’d recommend TSLA for Growth Investor (or to anyone else).
Note: I can’t believe how badly the media is downplaying the 5G revolution. They’re so focused on Tesla and trade wars that they’re completely missing the epic battle over 5G.
You may have heard that the big wireless carriers — Verizon (VZ), AT&T (T), T-Mobile (TMUS) and Sprint (S) — are racing to roll out 5G networks.
But this story is MUCH bigger than that. 5G will literally change the world forever.
5G has many more applications than smartphones — and one of them is “the mother of all technologies,” a breakthrough that will change our world.
Go here to watch my presentation on the huge technological shift going on now. At the end, you’ll get the chance to hear my #1 Investment for the Coming 5G Revolution — for free.