Right now Tesla (NASDAQ:TSLA) is a stock a lot of people want to hate. While the NASDAQ averages are up 20% so far in 2019, Tesla stock is down nearly 20%.
Greenlight Capital CEO David Einhorn is among the loudest detractors. He writes “the wheels are coming off” and thinks Tesla is on the brink of failure.
Earnings estimates for the March quarter, to be reported April 24, are grim. Average analyst estimates predict a loss of 75 cents, but the earnings whisper number is a loss of $1.13. Revenue is expected to come in at $5.33 billion, against $7.2 billion during the fourth quarter of last year.
Is Tesla Failing?
Tesla still sells more like a tech stock than an auto stock. The market cap on April 15 was about $46 billion, against 2018 revenue of $21.46 billion. By contrast, rivals like General Motors (NYSE:GM) and Ford Motor (NYSE:F) sell at just one-third their revenues.
As far back as 2016 I identified scaling production as Tesla’s main challenge. As recently as last month, I asked if CEO Elon Musk’s magic had disappeared.
But Tesla is not going out of business.
In September, Tesla had almost as much of the U.S. luxury car market as BMW (OTCMKTS:BMWYY) and Mercedes-Benz (OTCMKTS:DDAIF) combined. The Model S took 36% of the U.S. market for large luxury cars last year. The Model X has nearly one-fifth the luxury SUV market. The Model 3 is the best-selling electric in the world.
Tesla’s Problems
Tesla’s problems today are real, but they’re different than those I identified in 2016.
Tesla can now mass produce cars, but it still lacks the infrastructure to deliver them. As more of its cars hit the road, problems with them are being uncovered. Consumer Reports is no longer recommending the Tesla Model 3. The factory is picking up environmental fines.
Musk himself remains incorrigible, tweeting a forecast that Tesla will deliver 500,000 cars over the next 12 months before telling investors. Musk is trying to eliminate his dealer network, going to all-online sales. He is backing away from the long-promised $35,000 price point of the Model 3. He is reportedly putting off plans to expand Tesla’s battery plant in Nevada.
Additionally,Tesla and Elon Musk are in bad political odor with an Administration committed to oil. Not only do Republicans want to kill incentives for electric vehicles, they want to add new taxes on them.
During 2017 and 2018 Musk tried to charm President Trump but he now says the President “screwed him.”
Short interest in Tesla stock is exploding. Over 32 million shares are being sold short with a float of just 126 million while one-quarter of shares are held by insiders.
The Bottom Line for Tesla Stock
Tesla stock rose before it was a real car company.
Now it is a real car company. It is experiencing all the problems associated with being a real car company.
But Tesla is not a failing car company. It is still a growing car company. It is building its own factory in China. It has plans to offer a crossover, a pick-up, a roadster, and even a semi-truck. The problem with Tesla stock is that it’s still priced like a tech stock.
I still think the short interest in Tesla is overdone, however. As the saying goes, he who sells what isn’t his’n, must buy it back or go to pris’n. I suspect the shorts are about to get squeezed again.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
