Tesla Motors Inc (NASDAQ:TSLA) is hiking the base price of its Model S sedan, which is not really something investors in TSLA stock needed to hear after last week’s drubbing. Heck, it’s going to be challenging enough as it is to sell electric vehicles under the new guy in the White House.
Tesla stock has been sliding ever since the surprising result of the presidential election and it’s easy to see why. A Trump administration is expected to be pro fossil fuels and much less interested in greener energy alternatives.
That doesn’t just hurt the potential of electric vehicles, but also throws TSLA’s proposed acquisition of SolarCity Corp (NASDAQ:SCTY) into question. As Morgan Stanley analysts put it following the election:
“An environment that moves away from incentivizing electric vehicles is clearly adverse to the story. However, the company was set to exhaust its $7,500 US Federal tax credit for EVs by 2018 anyway and given the very high price point of its vehicles, we don’t believe the incentives were a dominant factor in the purchase decision for these high performance vehicles. Potential removal of incentives for solar adds a headwind to the energy side of the equation, particularly on the eve of the SolarCity (SCTY) acquisition. No direct exposure to Mexico for supply and relatively limited exposure to China for demand may limit the protectionism risk, but a stronger dollar hurts export profit. We cannot see this in a positive light for Tesla.”
On the plus side, Tesla doesn’t lean much on public incentives to begin with. With the exception of SCTY, it’s possible to argue that the fears stemming from a Trump presidency are overblown. The downside is that investors will sour on the name anyway.
Here’s what analysts at Baird have to say:
“Tesla should be relatively insulated from the effects of a Republican win, but sentiment will weigh on the stock. Tesla receives little government support for products, and does not anticipate federal tax incentives for the Model 3. As a result, we do not expect a significant amount of fundamental risk. That said, negative investor sentiment will likely weigh on the stock in the near term.”
TSLA Stock Sentiment Wasn’t Great to Begin With
Sentiment was already wobbly as far as Tesla stock was concerned. There was a lot of healthy skepticism about the wisdom of buying SCTY before the election. Any doubts about the deal should only be reinforced by this new uncertainty facing solar names.
TSLA’s price-to-sales ratio has been in steady decline for two years now. Shares used to go for about $13 times trailing 12-month sales. That figure is now down to about $4.50.
If valuation is a proxy for sentiment, it’s clear that Tesla stock investors have become much more sober these past few years. Indeed, the stock started trading sideways at the end of 2014 before it began a slow decline this year.
The TSLA stock price is now off more than 23% for the year-to-date after making a definitive death cross at the beginning of last month.
The Trump victory only adds to the pressure that existed well before the election. There were already fears that a combined Tesla-SolarCity was going to be a capital hog. This is from analysts at Oppenheimer:
“We believe a combined entity will face cash needs in four key areas: stationary power capex (primarily solar), auto capex, working capital and operating lease obligations. In total, we expect the combined company needing ~$12.5B for capex through 2018 sourced from a combination of asset-based debt, system refinancing, tax equity and corporate debt.”
If the political tide turns against green energy, it will be even harder for Tesla to amass the capital it’s going to need to make the combination work. TSLA stock still looks like a good long-term bet, but don’t be surprised if it underperforms, maybe by a lot, for some time.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
