This might be the moment that the short sellers of Tesla (NASDAQ:TSLA) stock have been waiting for. The straw that breaks the camel’s back, so to speak, or rather the truth that will crack a gaping hole in the confidence of those who are bullish on Tesla stock.
Elon Musk’s loyal fans have kept Tesla stock trading at stratospheric valuations based on pie-in- the-sky estimates of future sales.
However, the recent news of deliveries falling over 30% from the fourth-quarter of 2018 to the first quarter of 2019 is more than a disappointment; it’s a wake-up call. For the owners of Tesla stock who have stood by the increasingly erratic Musk, citing his brilliance, and his vision, who have overlooked the company’s lack of earnings and its detrimental SolarCity acquisition, might finally have to take a look at the numbers and admit problems exist on the manufacturing and service fronts.
In the aftermath of the news, Tesla stock dropped over 10%. It has subsequently bounced a little bit, but the bears feel validated, and I think Tesla stock is going to fall further. Demand for TSLA stock is tapering.
Downright Dangerous
Sometimes investment ideas come to people based on personal experience e.g., taking a walk through the park in the iPod-era and seeing seven out of ten young people glued to the device.
Recently, a friend mentioned that she got her $1,000 Model 3 deposit back after being on the waiting list for over a year and after having once been very excited in anticipation of getting the vehicle. She and her husband are both mechanical engineers, and friends of theirs who had already taken delivery of their Model 3s advised against acquiring the car.
The lease on their current electric vehicle finishes at the end of this year, and at the top of their list is the Mercedes‑Benz EQC. Unequivocally, the EQC looks mighty fine.
Their major concern is safety. Not only the many big stories about fatalities that make headlines , but also issues with the amount of time required for repairs. Often repairs of Tesla vehicles are needed after battery-related fires that are unique to Tesla’s batteries. Byron Bloch, an independent auto safety expert, stated,
“When Teslas crash, heat built up in the cells of the cars’ massive lithium ion battery systems can result in fires that are particularly tough to put out.”
The Model 3 Will Hurt Tesla Stock
The Model 3 has been a dud. Even the forum on the Tesla website shows that Model 3s have problems when they are driven in weather conditions harsher than those prevalent in southern California. One person wrote the following on the forum:
I just bought an AWD long-range model 3. I drove back from the Chicago Tesla store back to my home at East Lansing, Michigan. When I entered the highway near the supercharger at St. Joseph, MI, there was about 0.5 inch of snow. The car lost control twice (fishtailing, I guess) at this highway entrance and later one more time on I94 which was only lightly covered with snow. I drove my old 2006 corolla for ten years and only lost control on snow twice.
That was just one of many complaints by new owners of Model 3s. It wouldn’t be surprising to see the negative news flow increase as the cars age and as TSLA reduces investment in its dealerships. The timing of these problems could not be worse, as formidable competitors are arriving on the scene in a real way.
Tesla’s Competition
It has always been known that luxury car makers were developing their own electric vehicles, but evidently the market decided not to fully price in the competition until it could see its own reflection in the shiny exterior of actual vehicles.
That time has come.
Even the latest iteration of the Chevy Volt from General Motors Company (NYSE:GM) is much improved since its early days. Just a few years ago, the Volt was a car that most people wouldn’t be caught dead in. It really just missed the mark on design; perhaps GM thought that the electric angle would be enough to power sales of the vehicle. Today though, the Volt looks much more sleek.
On the private side, there’s the Rivian, an electric-powered SUV that taps into the adventure ethos. It looks pretty cool and goes from 0 to 60 mph in three seconds and can go 450 miles on one charge. Acceleration. Check. Long-range charge. Check. Sleek design. Check.
Where, then, is Tesla’s edge?
A Final Word on Tesla Stock
The fact is that TSLA will no longer be the de facto choice for consumers interested in purchasing electric vehicles. Its already-tenuous sales will be assaulted from all sides. And until actual Model Ys, Tesla Semis, and Tesla Pickups arrive, investors can’t assume Tesla will even be able to properly manufacture those vehicles.
TSLA did indeed once have a first-mover advantage. Despite the company’s inability to execute, Tesla stock has soared. However, TSLA is not a leader in battery technology. It’s not going to be saved by the Chinese market, which is already saturated with extremely competitive local companies. And TSLA will not be a leader in electric-vehicle technology.
At the time of this writing Luce Emerson was short Tesla stock.
