When you’re a billionaire, you get away with things. Tesla Inc. (NASDAQ:TSLA) continues to float above its critics, with Tesla stock opening for trade July 9 at $311 per share. That’s a market cap of about $53 billion and, based on fundamentals, it makes no sense. Tesla has no profits and sells for over 4 times last year’s sales. General Motors Corp. (NYSE:GM) sells for barely one-third its sales.
This has made Tesla a popular short, and that’s the secret to its success. There were over 37 million shares being shorted in June, over one-quarter the public float of 126 million.
By very loudly spending just $10 million on his stock in May, CEO Elon Musk was able to squeeze those shorts so hard the stock rose from $275 per share to over $350 per share in less than a month.
Nice work if you can get it.
Tesla’s for Sale
I wrote years ago that Tesla’s chief challenge was scaling production — and that remains the case.
Tesla went to great lengths recently to produce 5,000 of its Model 3 sedans in a week, and at that rate, it could make 260,000 in a year. But that’s not its standard rate — and it’s still less than half of what GM makes.
In fact, Tesla produced just 28,578 of its Model 3 sedans during the entire second quarter, and 40,730 vehicles total. Yet it’s now starting to promote the Model 3, while claiming a 19-month backlog, thanks to pre-orders.
To Wall Street, none of this makes sense. That’s why 10 of 31 analysts following Tesla stock have a “sell” recommendation on it, an extraordinary figure.
The Stunts Work
Critics insist that none of this is necessary, that had Musk avoided “mistakes” he would now have a profitable, albeit smaller, company.
This is nonsense. If Elon Musk were modest, Tesla never would have gotten off the ground. Musk is an entrepreneur, a high-wire act. Frankly he’s what capitalism is supposed to be all about — larger-than-life figures doing extraordinary things. Why analysts assume it’s supposed to end like the movie Tucker is beyond me.
Tesla stock bulls say the company “has the potential to become Bayerische Motoren Werke AG (ETR:BMW).” BMW has a market cap of 52 billion Euros, but also has twice the quarterly sales, 22.6 billion Euros, than Tesla brings in during an entire year.
In other words, even if Tesla fulfills what the bulls call its potential, it’s already overpriced. The Euro is currently worth almost 20% more than the U.S. dollar. That’s the bull case.
The Bottom Line on Tesla Stock
If people weren’t so convinced Tesla was about to fall, and trying to profit on it, then Tesla would, indeed, fall. Musk’s taunting of the bears, his public investments in his stock in defiance of economic reality, are keeping the stock afloat.
Tesla is next due to report earnings on Aug. 1. It’s expected to lose $3.61 per share on revenues of about $3.96 billion.
It’s easy to see Tesla beating these estimates. Last quarter it lost over $709 million, or $4.19 per share, on revenue of $3.4 billion and investors cheered.
If Tesla fails to beat the number, of course, management may talk about sales of batteries and solar panels doubling, year-over-year, or about service revenue increases. But it’s down to $2.6 billion in cash and has $8.7 billion in long-term debt on the books.
Does Musk have another magic trick up his sleeve? Maybe. But if the market tanks, if the economy falls, if the trade wars happen, it will be game over.
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 firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.