While the overall markets have been mostly in an uptrend this year, Tesla (NASDAQ:TSLA) stock has been anything but. Rather, it’s been a wild ride. TSLA stock began the year by hitting roughly $350 in January before plunging to $285 by the month’s end. Elon Musk & Co. would see a nice bounce back to $322 in February, but it would not last long. Tesla stock is currently trading hands at $297.
But hey, this kind of volatility is typical. And it probably will not change any time soon. Despite all this, I’m still a cautious bull. In the near term, there are some potential catalysts for TSLA. Keep in mind that the company plans to begin selling the Model 3 in Europe and China in the next few months. We should also get some details on the Tesla Y crossover.
Of course, on a long-term basis, the company has opportunities for substantial growth. Just look at artificial intelligence (AI). Because of the large number of vehicles on the road, Tesla is continuously building a valuable database — and its computer systems are getting smarter and smarter.
In the meantime, the company continues to post profits and has $3.7 billion in the bank. While all this is great, Tesla stock still faces considerable risks. According to Elon Musk, the company came close to imploding last year; and such dire circumstances seem like a quarterly occurrence for the often-beleaguered automaker.
So for investors looking at Tesla stock, it’s a good idea to think about the potential landmines. (And yes, there are many.) Some of these landminds are especially treacherous. See for yourself:
Risks to Tesla Stock: Musk Drama
Musk has one of the best track records in tech. In the mid-1990s, he founded Zip2 and sold it for more than $300 million. Then he launched PayPal (NASDAQ:PYPL), which revolutionized digital payments. And yes, he would eventually put together SpaceX.
While Musk is certainly brilliant, he can also be unpredictable. Last year’s ill-fated attempt to take his company private is an example of this. It resulted in penalties from the SEC, which included revamping the board.
Musk’s mercurial personality could ultimately lead to even worse consequences, though. Keep in mind that there has been significant turnover in the executive suite, which could hamper growth. Some of the latest departures include Tesla’s in-house counsel and chief accounting officer. According to the Wall Street Journal, more than 50 executives have left the company during the past two years.
Risks to Tesla Stock: Quality and Scale
Production has been one of the biggest issues for TSLA stock. Let’s face it, the company’s cars are highly complex and require sophisticated processes. The company has also been hamstrung because of a lack of sizeable production capacity.
True, Musk has done a tremendous job in improving things. But it seems like a good bet there will be ongoing challenges as volumes ramp up.
Note that Consumer Reports recently nixed its recommendation of the Tesla Model 3 because of reliability and quality problems. Of course, Musk quickly responded, indicating that the problems have been resolved. Yet he has certainly been prone to making statements that have proven to be overly optimistic.
Risks to Tesla Stock: Competition
Going mainstream is a herculean task in the auto industry. It has meant the destruction of many startups. Tesla has beaten the odds.
But as time goes by, it will get tougher as the competition grows more intense. In the next couple years, the market will see a flood of EV offerings from operators like Volkswagen (OTCMKTS:VLKAY), Toyota Motor (NYSE:TM), General Motors (NYSE:GM), Ford (NYSE:F), Nissan (OTCMKTS:NSANY) and Nio (NYSE:NIO). Oh, and tech operators like Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Waymo will certainly continue to gain traction with autonomous vehicles.
In fact, there are already signs that TSLA is getting antsy about the competition. For instance, Tesla plans to provide an option for consumers to lease its vehicles, and the company has also reduced the price of the Model 3. Price cuts aside, Tesla’s Model 3 is still above the $35,000 mark Musk promised (and really, needs) to win over the mass-market consumer.
Considering that it’s about to find itself outclassed in everything from cash to brand loyalty, Tesla stock is currently stuck between a rock and a hard place.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.