It’s not hard to see the good in the increasingly controversial Tesla (NASDAQ:TSLA) stock. Despite recent PR troubles, the company is a veritable technology powerhouse. It also levers quite possibly the world’s greatest line of electric vehicles. These and other attributes caused investors to overlook its weaknesses and buy up Tesla stock.
However, the negatives can’t be ignored indefinitely. The company has only recently turned in profitable quarters. However, a pair of solid earnings reports doesn’t undo the overall picture. Tesla still has a cash-burn problem, which weighs heavily on TSLA stock. Debt has also piled up in recent years, raising questions about management’s ambitious production targets.
But for me, the biggest impediment to Tesla stock is the underlying company’s own CEO, Elon Musk. Every organization eventually faces trying times. But not every firm, particularly publicly-traded ones, find their leaders nuking their progress. While I appreciate Musk the innovator, Musk the executive commits too many unforced errors.
His cryptic Twitter (NYSE:TWTR) post about private-equity funding landed him in hot water. It also attracted an investigation from the Securities and Exchange Commission. Another tweet regarding erroneous production capacities earned him another look from the same regulators.
Now, we’ve learned that the Department of Defense is reviewing Musk’s security clearance. This time, his infamous pot-smoking incident from the “Joe Rogan Experience” alarmed federal overseers. The security clearance is tied to SpaceX. Still, those who own a significant position in TSLA stock have reason for concern.
This isn’t about the individual incidents: I could care less if he lights up a joint. What I do care about is him keeping his stuff together for TSLA shareholders. I don’t think that’s too much to ask.
Apparently, that’s not how Tesla rolls.
Narrative Starting to Fail for Tesla Stock
I’ve never met Elon Musk in person. But from what I’ve seen through the mainstream media, he appears aloof, as if he were above it all. Perhaps that’s why intense pressures — such as an SEC investigation — don’t apparently faze him. But he’ll want to lock it in, if only to help prevent further damage in TSLA stock.
Click to Enlarge Over the last decade, the company’s revenues and the TSLA stock price generally had a direct correlation: as sales increased, so too did Tesla stock. This was most evident in 2013, when quarterly sales exploded on a year-over-year basis. At the same time, shares went from double digits into triple.
Later, TSLA experienced another dramatic sales surge from the second half of 2016 through the first half of 2017. Tesla stock responded quickly, eventually driving towards record-breaking levels in September of that year.
But something curious happened afterwards. While revenues started rising throughout the rest of 2017 and dramatically in 2018, TSLA stock didn’t follow suit. Instead, it went rangebound, occasionally falling precipitously below the $300 mark.
This dynamic tells me that Tesla is an emotional investment. But like any other emotion-driven asset, when the narrative fails, so too does the investment.
As it turns out, several analysts have sounded the alarm. Management recently announced a new product, the Model Y. However, Tesla hasn’t raised capital yet, which is extremely odd: they’re not known for their fiscal stability.
More critically, the company disclosed that they’re shifting worldwide sales to an online-only platform. Such a business model is unprecedented in the automotive industry. Not only that, exclusive web sales decrease visibility at a time when auto sales have broadly lost traction.
It appears that both Musk and his team have lost touch with reality, sending jitters to Tesla stock.
Electric Vehicles Are Still Impractical
I think the daredevil decision to move automotive sales online deserves more attention than it’s getting. While it could be a genius move based on car-buying trends such as Carvana (NYSE:CVNA), it could just as easily go awry.
Here’s one of the main problems: electric vehicles (EVs), while notably increasing in user conveniences and practicality, remain mostly impractical. For example, only 56% of American households have access to a charging platform (ie. a garage). The other 44% will have problems incorporating EVs into their lives.
On the other hand, fossil-fuel-powered cars can fit any driver’s living arrangements. All they require are basic infrastructure. Thus, Tesla has two sales challenges to overcome: first, they must convince consumers that an EV won’t crimp their lifestyle, and second, they must sell the car.
While traditional automakers aren’t necessarily enjoying life, they only have one obstacle: sell the car. Therefore, I don’t see why Tesla wants to make life more difficult for themselves. And Musk’s missteps are doing them no favors.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.