There’s no battleground stock in the market more intense than Tesla (NASDAQ:TSLA). Bears think that the TSLA stock price will eventually near zero as its finances collapse. Bulls think that Tesla has some of the best cars in the world and a maverick CEO who’s undertaken a bold mission to fight a corrupt system, making Tesla stock undervalued.

As I noted last month, the battle for the most part has proven to be a stalemate. Tesla stock has traded sideways for close to two years now. Bears have been winning of late – TSLA stock has dropped 25% from its early December highs of $375,  but TSLA stock price has bounced yet again in recent sessions.

I’ve generally sided with those who are bearish on Tesla stock, and I still do. For all the noise about the stock, for all the battles on Twitter (NYSE:TWTR), for all the commentary about CEO Elon Musk and the Securities and Exchange Commission, there’s one underlying reason why I lean more towards the bears on this one.

The bull case on Tesla stock requires – at least – that the company become the best automobile manufacturer of all-time. I’ve never believed that would happen, and recent developments have given me little reason to change my mind.

The Case for Tesla Stock

Tesla bulls will argue that outlook of TSLA is positive for reasons that go well beyond automobiles. Between the solar business, the Powerwall, and battery technology, Tesla can revolutionize the entire, global energy industry. It’s that potential which drives uber-bulls to suggest that Tesla stock could eventually be worth thousands of dollars per share.

But to reach that point, Tesla has to win in automobiles first. If its car business remains unprofitable all those dreams will end, particularly with the company’s solar business struggling. The gross profit of its energy generation and storage segment declined 21% in 2018, according to its 10-K.

And it’s tough to win in the automotive sector. It’s a cyclical, capital-intensive, brutally competitive industry. Among major U.S. manufacturers, only Tesla and Ford Motor Company (NYSE:F) have avoided bankruptcy. Margins are thin, which keeps profitability down in good times, while significant fixed costs turn those profits negative in a hurry when sales decline.

Musk knows this. During the Model 3 ramp, he tweeted that the company had “gone from production hell to delivery logistics hell.” But Tesla believes it will be the best in the long-term. It’s targeted 25% gross margins even for the $35,000 Model 3 , and outside experts think the car’s margins can reach 30%. The 25% figure would be among the best in the industry.

It’s too simple to say that if Tesla hits its gross margin targets, the TSLA stock price will go up, and if it doesn’t, the TSLA stock price will go down. But it’s not far from the truth.

With the gross margins on its vehicles coming in at 25%+, Tesla makes more net profit per car than pretty much anyone else, justifying the huge valuation of Tesla stock. If its margins drop, Tesla will become just another car maker, and ordinary automotive stocks don’t trade at 31 times forward earnings, as TSLA stock does.

The Problem with Tesla Stock

At this point, however, I’m not sure how an investor can trust this company. Musk’s credibility already has been eroded by years of broken promises. And those promises go beyond being overly aggressive with timelines.

Musk tweeted in October that the company started building its own car carrier trailers. He used the same platform the next month to tell investors that “we bought some trucking companies & secured contracts with major haulers.”

But a recent filing shows that Tesla only made one acquisition related to the car carriers, in January. And there’s been no mention of the carriers since then.

Meanwhile, executives are fleeing left and right. Tesla’s CFO left, and was replaced by a 34-year-old with zero experience. The general counsel departed after the Musk tweet that led the SEC to seek a contempt- of-court order against him. The Senior Director, Engineering left in January. In September, the VP of the Gigafactory and the VP of Manufacturing departed.

Left to his own devices, Musk made a serious error. And it’s an error that Tesla bulls need to take seriously. This isn’t a case of the commonly alleged ‘FUD’ (fear, uncertainty, and doubt) coming from shorts. It’s a move that calls into question Musk’s ability to make Tesla the best automotive manufacturer, particularly with so little outside help.

The Store Closures

It’s hard to remember a more poorly executed move by any company than Tesla’s recent store closings. At the end of February, the company announced via a blog post that the long-awaited $35,000 Model 3 was finally available. This seemed like good news for Tesla stock; the bears had long argued that Tesla never would be able to sell the cars for such a low price.

But in the same announcement, Tesla also disclosed that it was “shifting sales worldwide to online only.” That move would cut costs by 6%, according to the company, enabling it to sell the Model 3 for $35,000.

In other words, TSLA decided to close all of its stores. The move blindsided its employees, as Jalopnik reported. As many observers have pointed out, the decision came nine days after the company’s 10-K filing repeatedly cited plans to expand Tesla’s retail footprint. And TSLA somehow seems to have forgotten that it owed more than $1 billion for leases on those stores.

So Tesla backtracked. Some stores that were closed will be reopened. About 20% of locations are “under review.” And the company’s prices now are rising “about 3%,” although the Model 3 will still be sold for $35,000.

Tesla’s execution was nothing short of disastrous, creating a major problem for the owners of Tesla stock. As Jalopnik detailed, Tesla employees have no idea what to do at the moment. Test drives were canceled and then reinstated. Even Electrek, which is always sympathetic to Tesla’s cause, pointed out that the move would lead to massive pay cuts for its employees.

What This Means for the TSLA Stock Price

So Tesla changed a significant part of its go-to-market strategy, seemingly on a whim. Again, the move came nine days after the company said it was expanding its retail operations. As the Wall Street Journal pointed out, Tesla has signed new leases this year.

And while Tesla is claiming that 78% of its sales were made online anyway, Jalopnik noted that the company told its customers to order online even when they were in the showroom. At best, Tesla risked 22% of its sales and wanted to require that customers put down $40,000 to keep some of its cars for a week, rather than offering test drives.

There’s another fundamental problem. If Tesla is only cutting prices by 3% instead of 6% because its showrooms will stay open, but it’s not raising the  price of the Model 3, it’s clear that the Model 3 will be less profitable than the company had hoped.

It’s not as simple as saying that the company’s gross margins are going to drop by three percentage points, but that’s probably in the ballpark. That suggests that the company’s 25% gross margin target will drop to 22%.

But the fundamental problems aren’t the issue here. The issue is the company’s management. Close to zero thought went into the decision to close the stores. It appears highly likely that Tesla’s management – including Musk – was unaware the move would cost it over $1 billion upfront. It disrupted customer service, enraged employees, and upended its future negotiating position with landlords for essentially nothing.

A company fighting for razor-thin margins in a tough industry can’t do that  or anything close to it. Those who are bullish on Tesla stock are expecting the company to outperform giants, yet it’s acting like a mismanaged startup. That’s a huge problem for Tesla stock, and should dissuade investors from putting buying TSLA stock when its market cap is nearly $50 billion.

As of this writing, Vince Martin has no positions in any securities mentioned.