Despite my calling Tesla Inc (NASDSAQ:TSLA) a bubble stock, the shares have gone up steadily in 2017, 77% so far and counting.
Critics will say I know nothing. Readers who missed the ride will criticize me relentlessly. It is true I have missed a lot of profit.
But that doesn’t make me wrong.
Bubbles are easy to identify, but they can also be resilient. I was screaming about the dot-com bubble of the late 1990s starting in 1997. It did not pop until 2000. But it did pop, and when it did very few people got out with their profits.
This will be true in our time as well. The bubble in big tech stocks will end and will take the whole market down with it. There won’t be time for you to get out when the time comes, because people like me were wrong all this time and you won’t believe the fall when it comes.
Reality vs. Hype
The reality of Tesla is that it continues to fund its growth on investor money.
The company’s assets more than doubled between June 2016 and June 2017, from almost $12 billion to over $26 billion. Yet the debt to assets ratio ticked up, long-term debt rising from almost $2.7 billion to over $7.1 billion.
Tesla not only hasn’t made a profit. It doesn’t even have positive operating cash flow. CEO Elon Musk hasn’t run off to the dog track with the money. He put the cash into “gigafactories,” making cars and batteries and solar cells. But there is a difference between making factories, even making exciting products, and making money.
The latest hype involves pick-up trucks. This makes sense, since pick-ups are the chief profit-centers for General Motors Corp (NYSE:GM) and Ford Motors Inc (NYSE:F). Tesla announced a “Tesla Semi” earlier this year and is now teasing a light truck as part of his latest “master plan.”
The latest master plan sounds great, because Musk has executed on the plans he announced in 2007, but the company has yet to make a profit.
A profit, if it comes, will have to come at the expense of growth. Growth is already getting harder – analysts only expect revenues to rise 10% for the September quarter, to be announced November 1, from where they stood in June.
This doesn’t mean Tesla has not changed the world. It has. There are now a half-dozen electric cars on the street where I live, not counting the Toyota Motor Corp (NYSE:TM) Prius next door. Most are Nissan Motor Co Ltd (ADR) (OTCMKTS:NSANY) Leafs. None is a Tesla. Tesla has created an electric car market, but other car makers are the ones making a profit on it, as Richard Saintvilus notes.
The Bottom Line
I’m not down on all stocks that look like they’re in a bubble. I have been pounding the table for Amazon.com Inc (NASDAQ:AMZN) for years. That company eventually showed it could make a profit along with its growth, and I maintain an investment in it. If Tesla could show net income to go along with stellar growth, as Amazon has, I’d change my mind and say buy.
Unfortunately, I can’t time the end of a bull run. I couldn’t time the end of the dot-com era, which is why I don’t short stocks. But an event will happen that shows the maximum possible value for Tesla, as when AOL got 60% of Time Warner when it sold out.
Once investors see the roof, they’re going to look down and see the floor, and that’s going to be the end of it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, 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 owned shares in F and AMZN.
