Tesla Motors Inc (TSLA) has had a rough few weeks, with shares of the electric vehicle manufacturer down more than 20% since the middle of September. A number of things have weighed on TSLA stock, including a high-profile downgrade from Barclays on predictions that CEO Elon Musk is overly optimistic and that Tesla production will “significantly” miss forecasts.
More recently, there was the double-take by Consumer Reports — which had once given the Tesla Model S its highest road test rating in history, but provided a “worse than average” expected reliability rating as older vehicles have started to show their age and experience problems.
Throw in a bearish take on TSLA stock from investing icon Jim Chanos, and it’s no wonder why the company has been skidding out.
I happen to share this pessimistic view on Tesla Motors. In fact, I wrote recently about how the highly anticipated Tesla Model X is two years late already and that persistent production problems ad bottlenecks are the norm and not the exception.
In fact, a great many investors have skepticism about TSLA stock given its forward P/E of about 100 and history of volatility.
But to hear CEO Elon Musk tell it, things couldn’t be better.
“Tesla gets top rating of any company in service,” he wrote on Twitter (TWTR). “Most important, CR says 97% of owners expect their next car to be a Tesla (the acid test).”
In truth, the question asked by Consumer Reports was whether Tesla Model S owners said they would buy their car again. But when you’re the genius behind Tesla, Space X and SolarCity Corp (SCTY), I guess minutia like that isn’t so important.
And later: “Consumer Reports reliability survey includes a lot of early production cars. Already addressed in new cars.”
This whole situation, summed up in the recent crash of TSLA stock and the response by CEO Elon Musk, hinges on what your time horizon is. As long as the car is new and the sentiment is good on Tesla Motors, then why worry? Those who’ve bought and paid their bills are happy, and who cares about the rest?
But if you’re an investor who has bought into the long-term promise of TSLA stock and believes that previous customers will remain customers in the future, and that future production will ramp up impressively with no hiccups, then the concerns currently weighing on Tesla Motors are a very big deal.
Because ultimately, you need to decide where your confidence lies — in Tesla and Elon Musk, or with the many analysts and investors who think that a good business (even one with 97% of customers saying they’ll buy its product again) can still have an overpriced stock and a share price that goes nowhere for a year or two.
I, for one, cannot so easily laugh off the concerns about production and “quirks” in older model cars.
Particularly given that the valuation of TSLA stock is predicated on the narrative of aggressive growth with little room for error.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
