Elon Musk has been competing with the President of the United States for attention on Twitter (NYSE:TWTR) and now, his social media presence is actually beginning to impact Tesla (NASDAQ:TSLA) stock. After a 5% sell-off over five days, the stock’s year-to-date gains have been shaved to just 3%.
So, should you wade into these waters? With headlines swirling and the selling beginning to recede, let’s take a look at three pros and three cons of Tesla stock.
Pros for Tesla Stock
Production Ramp-Up. Evercore ISI analyst George Galliers released a note that bolstered the stock’s bull case after touring a Tesla factory. Galliers said Tesla was on track to produce 5,000 to 6,000 Model 3’s per week. Even better, adding 2,000 units to the upper end of that range shouldn’t affect spending, he said.
Improving Fundamentals. Tesla has long been a stock driven by optimism, not existing profits. But according to analyst experts, profits may be on the horizon. The loss expected for the current year has decreased from over $7 per share $5.44 per share in the last 90 days. And next year, a profit of $2.89 is expected — though estimates do move around a good bit. Still, the sales growth that’s on tap to drive that bottom-line expansion is even more eye-popping: 73% next year, with another 39% the year after.
A History of Defying the Odds. As long as TSLA stock has been on the public market, there have been very loud bears shouting about its impending demise. And yet overall, Tesla has been a positive investment over the long term. Perhaps the current panic is, well, just par for the course as the stock continues to climb.
Cons for TSLA Stock
SEC Probe. Tesla is currently facing a probe from the Security and Exchange Commission. To recap, Elon Musk tweeted that he had funding to take the stock private via a Saudi fund — and the SEC is investigating whether or not that indeed is the case. CNBC recently wrote that the possibility of going private is going to be a nightmare for advisors, whether or not it happens. The same could be said of investors, who are likely going to be jerked around for several more months.
Losing Money? While production of the Model 3 looks positive, another analyst finds the margins less impressive — or, more accurately, non-existent. UBS analysts recently said that Tesla is going to lose around $6,000 on every base-version of the Model 3 it sells. This is problematic because the Model 3 has long been discussed as the company’s way to appeal to the masses. Of course, mass appeal is a moot point if margins — even thin ones — are elusive.
Safety Concerns. Tesla has also been scrutinized for safety — both factory safety for workers and the safety of the company’s batteries. A whistleblower tweeted photos of allegedly damaged car batteries this week. Safety concerns just add to the field of landmines that seems to be lurking for Tesla as a company.
Despite the fact that Tesla stock has managed to defy the odds, I find the risk profile a little bit too much to stomach. It only takes one landmine to actually implode the company. I would stay away — unless you’re really craving some risk for your portfolio.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.