People make mistakes: that’s what makes us human. However, not all mistakes are created equally. When it comes to business, you must avoid unforced errors. Unfortunately, electric-vehicle manufacturer and all-around technology firm Tesla (NASDAQ:TSLA) has made several of them. It’s the core reason why I finally gave up defending the case for TSLA stock.
Unlike some of the bearish calls I’ve made, I don’t regret going negative on the trendy automaker. In early August of last year, I criticized Tesla CEO Elon Musk for unnecessarily courting controversy. Seven months later, I harped on the same theme when Musk endangered his security clearance. You all can consult a chart to see what happened to Tesla stock shortly thereafter.
At the same time, I can appreciate why speculators and contrarians would want to jump on TSLA stock now. By the end of May, shares had hemorrhaged nearly 40% from January’s opening price. But the month of June saw a robust revival, with shares up more than 21% as we head into July.
However, the TSLA price tag is equivalent to what we saw in December 2016, right before a big move up. That’s the compelling draw for discount-hunting contrarians.
But given the rough circumstances surrounding TSLA stock, is this a believable rally or a dead-cat bounce? It really comes down to whether you believe the glass is half empty or half full.
An Optimist’s Take on TSLA Stock
For those who are bullish on Tesla stock, everything centers on their EVs. That’s a favorable dynamic, especially in the U.S. automotive market.
Last year represented a potential turning point for TSLA, and EVs in general. Throughout the manufacturing spectrum, automakers delivered 360,800 plug-in vehicles for the domestic market. To put this into context, this haul represented an 81% lift above 2017 results. It was also the highest growth rate since 2013.
Naturally, Tesla EVs took home the lion’s share of plug-in sales. That’s true even though the company tripped all over itself due to Model 3 production issues, its EV for the masses. Such disastrous problems would kill normal automakers. However, it’s clear that there’s nothing normal about Tesla, and I mean that here in a good way.
In the first half of 2018, total EV sales improved noticeably over the prior year’s tally. But the gap skyrocketed in the second half when the Model 3 finally arrived in long-awaiting garages.
Better yet, that dominance continues today. For example, in April of this year, automakers sold 21,255 EVs in the U.S. Like clockwork, Tesla dominated the proceedings. In fact, EV sales would be downright poor without the house that Musk built.
Tesla’s Dominance a Possible Setup for Failure
On the surface, then, everything seems right with TSLA stock fundamentally. The usually unflappable Toyota (NYSE:TM) cannot keep up with Tesla. Nor can domestic powerhouses like General Motors (NYSE:GM) or Ford (NYSE:F).
However, I can make the argument that “over-domination” is also a problem. It implies that no one cares to compete in this segment.
Of course, that’s not an entirely true statement. Steadily, we’re shifting from a fossil-fuel based society to one that embraces clean energy. We should anticipate that EVs will play an important role in our automotive future.
But it’s also fair to point out that the EV revolution is not quite that. I pointed out recently that EVs have their own quirks and vulnerabilities. Under rough environmental conditions, EV owners may experience less range and other inconveniences.
Those issues aren’t terribly problematic for higher-end Tesla cars: those are clearly earmarked for rich people. But management designed the Model 3 with the mass market in mind. I’m almost certain that the mass market didn’t anticipate some of the disadvantages that EVs have compared to internal-combustion vehicles.
That’s where I start to worry about TSLA stock. Once the Model 3 backlog situation clears itself, what will the real demand look like? Moreover, what will that demand look like three to five years down the line once first-time EV customers have lived with the platform for a while?
I suspect that they’ll look at “regular” cars or hybrids more favorably.
Tesla Stock Is a Trade
Fundamentally, I’m leaning toward Tesla stock moving lower over the long run. While exciting, EVs still have some way to prove themselves practical in an internal-combustion based society.
Still, I could be wrong about my assumption. Advancing technologies could improve EVs to the point where they eliminate their current weaknesses. Certainly, that would make EVs compelling, even to a fossil-fuel fan like me.
Where I have a stronger conviction is that TSLA stock is currently a trade. I still have big questions about the longer-term fundamentals. In addition, Musk is a wildcard. Finally, let’s not forget that a rogues gallery of executives have left the company.
You can gamble here if you’ve got the stomach for it. As for me, I’ve endured my fair share of Tesla-related drama. I’ll pass until I see some more convincing numbers.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.