Tesla (NASDAQ:TSLA) gets a “D” rating in my Portfolio Grader, and keeps falling, month after month.
It has been the darling of the next generation car industry, with its bold rollout of electric cars, trucks and the batteries. And founder and CEO Elon Musk is certainly a celebrity businessman and inventor, with a bold portfolio of visionary companies.
But whether he’s the 21st Century’s Thomas Edison aside, we are investors and have to look at his businesses through that lens, first and foremost. This isn’t about ‘potential’ or vision. It’s about hitting your numbers and growing your company.
And on that front, I have some significant issues regarding Tesla stock.
First, the simple fact is, while the Nasdaq-100, an index that Tesla stock sits in, is up 23% in the past 12 months, TSLA is off 4%.
Recently, Tesla announced that it’s laying off 9% of its workforce to reorganize its troubled production line of its broader consumer-focused Model 3. It has been plagued by production delays that have ranged from technology issues to labor issues. But the fact is, production is still nowhere near where it should be.
Yet in classic Musk style, he came out swinging at the analysts and then changed the subject. He announced that Tesla is coming out with a pick-up truck and some semi-truck news, all while he can’t get cars off its production line.
And selling cars is the foundation of the business, not selling the next idea. And if they’re not rolling off the line as scheduled it not only hurts the stock price but also makes it tough for TSLA to raise money with bond issuances. This is not a good position for a company to be in.
I personally know folks at the Reno battery plant and all I can say is that chaos reigns.
The new automation equipment was recently installed at the Tesla Reno battery plant, so it will be interesting if the battery production significantly picks up. Frankly, I do not expect Tesla to ever become cash flow positive. And that isn’t good, at all.
And there’s much more competition coming online that actually can roll cars off the assembly line without all the drama. Porsche, Audi, and Jaguar all have cars that are coming to market that will challenge Tesla at all its price points.
There are also issues coming to light regarding the batteries TSLA is using. Some competitors are claiming that TSLA batteries aren’t as safe or efficient as newer generation batteries on the market.
And this hits me on a personal note because two of my high school daughter’s classmates recently burned to death in a tragic Model S crash in Florida just before their high school graduation. The NTSB is investigating this Model S incident and may force a redesign of the Model S, since the lithium batteries exploded and burned.
But there’s another piece to this that most investors don’t see right now. If Tesla stock keeps heading down, losing its market cap, it would lose its place NASDAQ 100 index. Much of Tesla’s premium market capitalization is due to it being in the Nasdaq-100 (index funds buy all the companies in the index, etc), so as soon as it gets booted from this popular index, Tesla stock’s collapse would accelerate.
My long-term view is that Geely Automobile Holdings Ltd (OTCMKTS:GELYY), which is a Chinese company that owns Volvo (and Warren Buffett owns a 10% stake), may purchase what is left of Tesla, and incorporate it into its Volvo brand to lead its electric vehicle manufacturing.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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