The Tesla Inc (TSLA) Stock Hype Cycle Will End in Tears

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TSLA stock - The Tesla Inc (TSLA) Stock Hype Cycle Will End in Tears

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It is fitting that Tesla Inc (NASDAQ:TSLA) CEO Elon Musk seems to get along so well with the Trump administration. Like the administration, like the stock market and like the economy, TSLA stock is hitting crunch time.

Tesla Inc (TSLA) CEO Elon Musk

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Bank of America just slashed its price target on Tesla shares to $165, which would represent a more than 45% decline from current prices. Its worry is the “long-term viability” of the company thanks to bringing in financially strapped SolarCity, as well dilutive capital raises.

I agree that SolarCity’s a problem, but only because it reflects a broader issue with Tesla.

For Tesla, the point where the game is won or lost is scaling. Tesla must stop talking about how it’s going to build hundreds of thousands of “cheap” ($35,000) Model 3 cars and start producing them. Meanwhile, the company is gearing up by doubling the number of its charging stations, with mass deliveries of its Powerwall batteries and SolarCity panels now planned for next year.

It’s always gearing up. When will it deliver?

So far in 2017, TSLA stock has been rising on the wall of doubt created by short sellers, opening for trade on April 25 at $308 per share and a market cap of $51 billion — that just tops longtime market leader General Motors Company (NYSE:GM).

But we know GM can make millions of cars. Can Tesla?

Promises, Promises

Tesla stock has long been divorced from financial reality. The company is due to report its first quarter results May 3, and analysts say they will be happy with a loss of 76 cents per share on revenue of $2.52 billion. The latter would represent 10% year-over-year growth, while the former would be about half the loss.

Not everyone is worried. Chris Lau is thrilled about a potential Tesla truck, and is less concerned about the company recalling 53,000 vehicles, or cutting the price on its Model S.

TSLA stock is up 44% so far in 2017. Most traders are making big money on Musk’s reality distortion field, treating press releases or news of investments like the 5% stake of Tencent Holdings Ltd. (OTCMKTS:TCEHY) as equivalent to final sales, as accomplished reality.

TSLA stock chart

This is true for the stock market generally, trading at 17.5 times earnings — a record last seen near the high of the dot-com mania in 1999.

That ended in tears. Manias do that.

Reality, Reality

The fact remains that the industry posse is on Tesla’s tail.

Audi is already showing an all-electric car with self-driving features, with a 300-mile range and at a Tesla price. General Motors already offers four all-electric cars, starting at $25,000, and is planning to mass-produce its Chevy Bolt.

Tesla has started a race toward an all-electric, self-driving future, but there are tons of entrants — not just from the auto industry, but from the tech industry. The the alliances among “old-line” manufacturers and companies like Alphabet Inc’s (NASDAQ:GOOGL) Waymo — whose cars you can start test driving if you live in Phoenix — or Apple Inc. (NASDAQ:AAPL) are just starting to be negotiated.

Bottom Line on TSLA Stock

Even if Tesla succeeds in delivering on its mass production promises, it’s not going to own the market, just part of the high end of it.

There is a difference between pioneering a product category and either dominating that category or making money at it. Android dominates the smartphone market, Apple makes most of the money. Tesla has only proven, so far, that it can dominate the hype of the market, not the reality, certainly not the profits.

I have seen this movie before. TSLA stock and the broader markets are in a hypce cycle like that of 1999. That cycle ended when the maximum value of Internet assets was defined by AOL’s takeout of Time Warner in early 2000. When the real value of what Tesla can do is recognized, the current hype cycle will end as well.

In tears, as always.

Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now 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 AAPL, AMZN, FB, GOOGL and MSFT.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/the-tesla-inc-tsla-stock-hype-cycle-will-end-in-tears/.

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