Betting against Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk has mostly been a losing battle. He does the seemingly impossible, from creating a new-age car company from scratch to actually making it profitable (from time to time). And for as rough as the road has been at late, he has made many TSLA stock holders a lot of money.
That’s just at Tesla, by the way. He also has done things like bring a pathbreaking payments service, Paypal Holdings Inc (NASDAQ:PYPL), into the foreground, and he launched an innovative solar operator, SolarCity Corp (NASDAQ:SCTY). And through SpaceX, Musk could become one of the fathers of commercial space flight.
So what could go wrong with TSLA stock? Musk is the man of destiny, and Tesla is one of his prized brainchildren, right?
Maybe. But when you ride with someone who pushes the envelope, that ride is going to be gut-wrenching. It’s what happens when you focus on the very, very long game in the tech space.
But us mere mortals occasionally have to be worried about the short-run. And right now, the worry is: Is Tesla stock a good bet here?
The Many Headline Risks to TSLA Stock
I think caution should be the word of the day.
First up is the $2.6 billion acquisition of SolarCity Corp (NASDAQ:SCTY). Perhaps this will be key in Musk’s vision of TSLA, which came from a recent post on Twitter: “Tesla + SolarCity future: solar roofs + batteries + electric cars.”
Yes, it’s a bold, audacious vision, and an unsurprising one at that. But the SolarCity deal could burn Tesla stock.
SCTY has been a persistent money loser. For the year so far, SolarCity has posted close to $2 billion in negative operating cash flows. Just some of the issues include the enormous capital costs and marketing expenditures. Also not clear is the overall demand for solar panels, even though Musk promises they won’t be an eyesore.
However, to get a sense of the skepticism on Wall Street, just take a look at what analysts from Morgan Stanley recently noted (emphasis mine):
“Given (SolarCity’s) financial condition and recent reduction in guidance, we have assumed zero value for (SolarCity) equity to (Tesla) shareholders.”
Tesla is a capital hog as well. For next year, the company will be gearing up for the launch of the Model 3 sedan. Then there is the $5 billion Gigafactory, which is the huge facility to develop lithium-ion batteries. Folks, yet another capital raise is coming, almost certainly next year, and TSLA stock holders will be diluted.
It gets worse from there.
The election of Donald Trump is not good news for tech companies and “green” companies, and Tesla is both.
Tesla relies heavily on tech talent, so more restrictions on immigration could have an adverse effect. This isn’t wild speculation. The market is seriously concerned, and as a result, sold off numerous blue-chip tech names including Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon.com, Inc. (NASDAQ:AMZN).
Then there’s the regulatory risk. Trump’s campaign rhetoric illustrates that he’s not a big fan of subsidies, especially for alternative fuels. He has not been shy about his enthusiasm for fossil fuels and coal. Consider that his nominee to head the Environmental Protection Agency — Myron Ebell — does not believe in climate change.
In other words, Trump could roll back various tax breaks, such as credits for solar and R&D credits. That won’t be a terribly difficult task considering he has a Republican Congress.
Such moves might not be an issue for buyers of Tesla’s higher-end cars, as they’re generally high-income earners that don’t need the help of some tax breaks. But it could be an issue for Model 3 buyers, as well as with SolarCity.
Expect all this to rattle investors, who might be less willing to finance Tesla’s ambitions.
Those are just the headline risks we know of now. A likely volatile Trump administration could do much worse to TSLA stock in the coming years.
Again, Musk has defied many odds with Tesla, but much of his success came during a pro-cleantech Obama administration. But now for the next few years, jarring changes could be a nightmare for TSLA shareholders.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.