Tesla Inc (NASDAQ:TSLA) continues to roll out innovations that dazzle both investors and consumers. From batteries to panels to automobiles, Tesla has been a wellspring of innovation for electric power. However, TSLA stock has remained in a restricted trading range since April. Production missteps have also plagued the company’s product rollouts and slowed production of its vehicles.
These issues have kept revenue below its potential and, now, the company faces a cash crunch. Given high valuations and financial issues, investors should avoid TSLA stock for the time being.
Few Can Match Elon Musk’s Creative Genius
As my InvestorPlace colleague Chris MacDonald correctly points out, innovation is not Tesla’s problem. I believe historians will regard Elon Musk on the same level as Steve Jobs, Thomas Edison or his company’s namesake, Nikola Tesla. Mr. Musk’s inventions have and will continue to change the world.
Priced at $35,000, Tesla’s Model 3 brings electric vehicle technology to the middle class. Fans of Tesla and TSLA stock should not forget other innovations either. The company unveiled its Roadster and its Semi in November. Anticipation around the Semi appears strong, as companies such as PepsiCo, Inc. (NYSE:PEP) and SYSCO Corporation (NYSE:SYY) have placed pre-orders on the vehicle. Innovations in solar panels, solar roof shingles and batteries also have potential to create new markets.
With these inventions, investors naturally want to own TSLA stock — just like an investor would have wanted to invest in General Electric Company (NYSE:GE) in the late 1800s or Apple Inc. (NASDAQ:AAPL) in the late 1900s.
TSLA Stock Faces a Cash Crisis in 2018
However, the company has valuation and cash flow issues that might make a stock purchase unwise at this time. Since its inception, Tesla has burned cash in a rush to bring its creations to market. The company now faces a cash crunch that will force TSLA to raise capital sometime in 2018. Analysts rate Tesla’s bonds as having junk status, which makes issuing more of them a less appealing prospect.
Also, the stock itself could face other troubles. One potential issue is the behavior of the stock itself. Tesla stock has formed a double top in the high $380s per share and has twice come back from that level. Moreover, as many of my colleagues have pointed out, TSLA stock has experienced the dreaded “death cross”. This happens when the 50-day moving average goes under the value of the 200-day moving average. Many chartists consider this an indication of a stock headed downward.
Given this situation and the lofty valuations the TSLA enjoys, the company could issue more stock. The TSLA stock price is in the $330s currently, giving the company a market cap of around $57 billion. In comparison, General Motors Company (NYSE:GM) has a market cap of about $58 billion. However, GM sells almost 100 times as many cars in a given year.
However, the prospect of more shares available, coupled with fears about the stock’s stability, could send share prices tumbling. Analysts expect losses for the stock until at least 2019, so raising cash will remain an ongoing need for the foreseeable future. In my previous article on Tesla, I described TSLA stock as an equity that should be purchased only with “gambling money.” I now believe the odds have worsened, and I recommend investors take their chips completely off the table for now.
Final Thoughts on TSLA Stock
Financial losses along with production issues make TSLA stock a poor investment at this time. Tesla’s innovations will likely bring cleaner energy and change many facets of the world economy in the years to come.
Unfortunately for investors, Tesla’s ability to produce and earn profits does not yet match its creative prowess. With bonds in junk status and its market cap nearly as high as GM’s, Tesla will likely have to devalue the stock to remain afloat.
Hence, with all the factors working against the stock, buyers should avoid this equity until Tesla’s financial situation improves.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.