Tesla Motors Inc (TSLA) is a wacky stock as far as price momentum is concerned.
That makes TSLA the ultimate momentum stock to trade … but I remain unconvinced about its long-term viability as a stock you should invest in.
Let me start with the fundamentals. What we know is that Tesla makes an outstanding product. I’ve driven one. My friends have driven them. The reviews are universally terrific. Elon Musk is a genius and deserves all the credit heaped upon him, and the money he’s made on Tesla stock.
As it stands, the current Tesla models aren’t even considered not luxury vehicles, but “super luxury.” US News and World Report even called the Model S the No. 2 vehicle in that category.
The problem for the company, and an investor, is that it is priced as such, with an MSRP of $70,000 on up to $104,000. That’s why, to date, TSLA has only sold some 50,000 units.
That’s too expensive to ever make any material market penetration. There are millions of cars sold every year, and 100,000 or 300,000 units simply means very little in terms of market share.
That hasn’t stopped Tesla stock from being valued the way it is, but more on that in a moment.
There are numerous problems with TSLA’s current line. Sure, it gets almost 100 miles per gallon equivalent, but the total driving distance per charge practically tops out at 300 miles on the largest battery. Most gasoline-based vehicles achieve that, and more. Charging stations exist in reasonable supply but are not yet ubiquitous, so you have to plot out your road trip if you are going long distances.
Which leads us to the debate over whether TSLA can deliver a $35,000 vehicle and give real meaning to the valuation of Tesla stock.
The current crop of electric cars in this range deliver an inferior battery range of 90 miles, at most. The Nissan Motor Co Ltd (ADR) (NSANY) Leaf only sold 22,000 units in 2013 and is falling below that level this year.
TSLA will deliver a better vehicle, but it will also have to deliver longer battery range. Musk hopes for a 200-mile charge on the smaller Model 3. Again, that doesn’t compare to any other gasoline-powered vehicle. If I have to choose between a BMW (BAMXY) at 23 mph with $2.50 gas and a Tesla, I’ll go with BMW.
Then there’s the question of whether TSLA can even lower battery costs enough to hit the lower price point, and in enough quantity to meet the demand expected. On a pure valuation basis, even with optimistic projections of $3 per share in earnings next year, the stock trades at 68 times estimates, and that’s just way too high to get into on an investment basis.
So I would avoid Tesla stock as an investment.
As a trade, however, you are in good company. TSLA is the ultimate momentum/hype play.
You have to be a nimble trader with the stomach for a roller coaster, however. Tesla stock peaked at $295 in August, and has since fallen to $205. Tesla stock recently broke through the 200-day moving average by more than 20 points as well as the 50-week moving average. While it has rebounded near the $220 since, it still has all sorts of overhead resistance; meanwhile, next support is at $180.
Watch to see if TSLA can clear its 20-day average in the $223 zone. If it can’t, be ready to go short. I’d suggest a 7% stop-loss.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets at @ichabodscranium.