Tesla Motors Inc (TSLA) has been softening up in the last few weeks, down about 15% from its September highs while the market itself is up about 3% in the same period.
Part of this is classic buy-the-rumor/sell-the-news behavior. TSLA stock rallied strongly from the start of the year through July, in part because of hopes for the highly anticipated Tesla Model X SUV and some optimism over the long-term prospects of Tesla as the electric vehicle leader.
But there have been some bumps along the way, including Tesla cutting production targets thanks to the Model X complicating manufacturing. Furthermore, a lot of the enthusiasm around the electric SUV has been priced into Tesla stock — particularly considering the Tesla Model X is already two years late.
I’ve already weighed in on why I think more delays may be ahead — and why TSLA stock could take it on the chin as a result. And I’m not the only one who’s skeptical of Tesla right here.
Investing icon Jim Chanos, who has made a bundle by being of the first China bears to point out the cracks in the country’s growth story, is also skeptical that TSLA stock can keep this up. Take this, from a recent article on CNN Money:
“While he called Musk’s Tesla cars a ‘great product,’ Chanos worries the electric car maker will always be a boutique car maker and won’t be able to transform into a mass market one.
‘To sell millions of cars — which is where the stock is valued — they’ve got a long way to go,’ Chanos said.”
That’s a great point. After all, it’s one thing to make a handful of luxury vehicles for high-end customers willing to shell out $150,000 or so and wait years for delivery on autos like the sexy new Model X SUV … but it’s another to consider mass market adoption necessary to keep TSLA stock from relying on niche products.
The real question, then, isn’t what happens with the Model X launch, but what’s in store when the line goes from two cars to three with the launch of the Model III compact car. We’re supposed to get a glimpse at the vehicle next year with production in 2017 … but even if that schedule is met, there are concerns about demand and growth rates.
Bottom Line
Chanos got China right, and has plenty of smart things to say about TSLA stock, too. Even if you’re a bull, you should at least take note.
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.
