Tesla Inc (NASDAQ:TSLA), formerly Tesla Motors, and CEO Elon Musk are on a roll. TSLA stock is up 35% since the November election, and Musk has been schmoozing new President Donald Trump by joining an economic advisory council, dodging the sort of flak General Electric Company (NYSE:GE) CEO Jeff Immelt got for chairing a jobs panel for then-President Obama eight years ago.
While disappointed Trump is letting NASA compete with his own Mars project Musk is forging ahead with a reusable rocket, a plan to fix Australia’s electricity problems and, of course, a 500 mile “Hyperloop” that claims it will revolutionize inner city travel.
Thanks to his big plans everyone loves Elon Musk right now, so no one — not even TSLA stock holders — is going to notice him doing a bait-and-switch on his only real product, right?
Pay Less, Get Less
Taking a page from Trump’s book, Musk spent part of March 24 on Twitter, showing a “release candidate version” of the Model 3 — a $35,000 sedan on which the company has gotten nearly 400,000 reservations, complete with $1,000 checks.
The problem is that the closer to reality the Model 3 gets, the less there is to it. The new car will have a less-powerful battery, a shorter wheelbase and minimal cargo space. The good stuff will remain on the Model S, the Tesla you already see.
He had already announced the Model 3 will pay to use Tesla SuperChargers.
Most of what makes a Tesla a Tesla suddenly becomes an option when the Tesla is a Model 3. Musk himself says he won’t drive the Model 3.
Overpriced Pays
Musk is also about to start taking deposits on his other hot new vision, the SolarCity “solar roof.” Again, there are lots of pictures, and the tiles supposedly look like regular roofing tiles, but nothing is being said about what matters, things like cost, or efficiency.
Tesla has built a luxury brand with promises to supply the middle class a revolution, in the process gaining the market cap of a mass market company without having to do the work.
At its present market cap of $42 billion, and stock price of over $260 per share, Tesla currently is valued at $6 for each $1 of sales. You know what other company is worth six times sales? Alphabet Inc (NASDAQ:GOOGL).
Meanwhile companies that build millions of cars, like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F), are valued at less than one-third their annual sales. These companies make electric vehicles. They are working on autonomous driving, and have installed some self-driving features in their vehicles already — your kids may never have to master parallel parking, for instance.
The closer to reality Tesla’s mass market car gets, the less of an improvement over other cars it becomes. Yet the stock market is still smelling that Musk, and still ignoring that essential reality.
Not only that, but Ford and GM will pay you to own their stock. Ford’s dividend currently yields 5.2%, GM’s 4.4%. This pales in comparison to Tesla’s 15.5% capital gain over the last year. But if you bought the last two times the Musk hype cycle was this hot — say last April — you’re sitting on a loss.
Bottom Line on TSLA Stock
Tesla rises, and Tesla falls. Its volatility makes it a great stock for someone who likes to sell when everyone screams buy, and buy when everyone screams sell. As recently as December, TSLA stock sold for $180 per share. Last June, it was under $200 per share.
Things will go that way again.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long GOOGL.
