Writing about stocks to sell is never an easy thing. As most investors are on the long side of the trade, going bearish invariably results in hate mail and the odd (and grammatically incorrect) death threat. But I don’t regret slamming Tesla (NASDAQ:TSLA) recently. Is it a good time to buy Tesla stock? Nope — Tesla shares are in for a world of hurt.
Back in early August, company CEO Elon Musk used Twitter’s (NYSE:TWTR) social-media platform to make an announcement that really should have gone through official channels. His tweet stated, “Am considering taking Tesla private at $420. Funding secured.” The news jolted TSLA stock, which jumped 10% on the day of the announcement.
Much of that enthusiasm centered on “reports that a Saudi Arabian fund acquired a significant position in the company.” Thus, it wasn’t the tweet’s believability that worried market observers. Instead, it was the format. Last month, I wrote:
As the [New York] Times reported, the Securities and Exchange Commission allows companies to use Twitter or Facebook (NASDAQ:FB) for announcement-making purposes. That said, market-moving announcements through social media must also be accompanied with a simultaneous public disclosure.
Between Musk’s cryptic tweet and the company’s clarification on the matter stood a several-hours gap. That could draw the SEC to sniff around, perhaps to look into a case of market manipulation.
Musk now probably regrets that Tesla stock reacted so positively that fateful August day. Just hours before the time of this writing, the SEC filed a complaint against Musk. Regulators seek to oust the eccentric and incredibly popular CEO from the company he founded roughly 15 years ago.
Musk issued a response yesterday:
“This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”
As well as Tesla Inc and its board of directors, which stands behind Elon:
“Tesla and the board of directors are fully confident in Elon, his integrity, and his leadership of the company, which has resulted in the most successful US auto company in over a century. Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”
I’ve defended Musk despite his previous poor decisions. I admired his willingness to own his mistake during Tesla’s last earnings conference call. But now, he’s done irreparable harm to TSLA stock.
Buy Tesla Stock Only If You Want to Lose Money
I’m beginning to think that science and finances don’t mix. Recall that the renowned physicist and mathematician Sir Isaac Newton lost a fortune in the stock market. Back in the modern age, Elon Musk is about to lose your fortune in Tesla stock. This has nothing to do with my gut feeling. During regular business hours, TSLA shed only 0.7% on Thursday. In the extended-hours session, shares tanked more than 11%.
That puts the equity price at under $273, a significant discount from its recent all-time highs. If you want to buy Tesla stock as a contrarian play, I have news for you: this is a toxic situation that has no redeemable value.
Harsh words, yes, but let’s just be honest: Investing in TSLA was just as much a technology play as it was a vote of confidence in Musk. While Tesla Inc. manufactures brilliant automotive products, it has several weaknesses. The cash burn and ever-widening net-income losses are at the top of the list.
Prior to Musk’s insane breach of protocol, I defended common criticisms against Tesla stock because of the CEO’s proven abilities. His other ventures, The Boring Company and SpaceX, showcased his enormous talents. With Tesla, we’re mostly talking about ramping up production numbers and keeping accountants happy. I don’t want to trivialize the problems, but for Musk, they’re more than doable.
But the central dilemma is that Musk doesn’t want to do them. In hindsight, I should have sided with short-seller Jim Chanos, who believed that “Musk will eventually bail on Tesla and work full-time for SpaceX.”
Clearly, Musk isn’t focused, or the mounting pressure short-circuited his brain. It happens, as he is still human. The end result is that he’s slowly killing Tesla stock.
None of This Was Necessary
One of the things that drive me nuts about watching sports is unforced errors. It’s bad enough when you have to compete with the world’s best. But you’ll never emerge victorious by beating yourself.
The dark cloud surrounding TSLA is a giant, unforced error. No one told him to act petulantly during that bizarre first-quarter 2018 conference call. He didn’t have to issue a cryptic tweet that’s now the basis for a federal regulatory complaint.
I mean, doesn’t Tesla have attorneys who advise executives on this and other matters? It’s not like Musk can’t afford them. Then again, maybe he thought he was above it all and decided to act on a whim.
Except that he wasn’t above it, not by a long shot. Making matters worse, the SEC wanted to make a deal with Musk. He ultimately chose to reject the offer under his legal team’s guidance, and now, he’s in a deeper predicament.
I used to call Musk a genius. More and more, he’s looking like a clever con-artist. Either way, this is not the time to buy Tesla stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.