In the classic Twilight Zone episode To Serve Man, space aliens descend upon earth, bringing with them advanced technologies. With worldwide prosperity achieved thanks to these extraterrestrial innovations, sovereign states destroyed all their weaponry. The aliens earned the earthlings’ trust through their book entitled, “To Serve Man.” Similarly, a genius named Elon Musk gave investors Tesla (NASDAQ:TSLA) and TSLA stock.
Like the fictional aliens, Musk gave consumers something they’ve never seen before. In our case, it was electric vehicles that didn’t stink. Previous electric or hybrid vehicles appealed only to drivers who were strictly focused on technical statistics and efficiencies. They certainly didn’t appeal to customers who wanted to look good in their new rides.
When it broke out, TSLA was like a breath of fresh air. The company first rolled out an EV roadster, then sedans and SUVs. They were — and still are — sleek and sexy machines. It’s no wonder Tesla stock jumped the way it did a few years back.
But like the Twilight Zone episode, not everything was well. When the aliens offered the earthlings apparently free travel to their homeland, people jumped on the opportunity en masse. There finally was a way for humans to break out of their mold.
There was just one problem: “To Serve Man” was a cookbook!
Of course, I’m not suggesting that Elon Musk is a cannibal: he’s high but he’s not that high. But he committed a similar action. Tesla EVs are gorgeous cars that perform well under the right circumstances. But in anything less than an ideal environment, EVs quickly lose their appeal.
And I believe now that this vulnerability will undermine TSLA stock.
The Core Product for TSLA Stock Is Fundamentally Flawed
Prior to Musk ensnaring himself in unnecessary troubles and controversies, I was bullish on Tesla stock. Sure, the company has always had its critics who frequently complained about rising debt and that awful cash burn. But eventually, I thought that the power of the TSLA brand — specifically, its EVs and innovative technologies — would right the ship.
Frankly, I was wrong. EVs, whether from Tesla, Toyota (NYSE:TM) or General Motors (NYSE:GM), won’t work, at least for some time. They’re inherently flawed, only truly serving the interests of the wealthy and geographically privileged. Living in San Diego, I was naturally fixated on the tree and not on the raging forest fire.
Whether you want to buy TSLA stock or a Tesla car, you desperately need to know something: EVs only perform to advertised specs in ideal conditions. If temperatures hit either hot or cold extremes, your battery capacity (and thus, your range) will drop considerably.
During last winter’s unusual chill, EV owners reported a 50% reduction in range.
That’s not a statistic you should take lightly. How would you feel if your car’s gas mileage absorbed a 50% haircut because it was raining outside? This is exactly the reason why I’m avoiding Chinese EV-maker Nio (NYSE:NIO).
But the worst part is that nothing economically practical in the nearer term can be done about this issue. When EVs drive in hot weather, their range also declines, especially if the driver cranks up the air conditioning. That’s because the EV battery must provide all the primary and secondary power needs.
Eventually, Tesla will figure out this problem and improve efficiencies, perhaps with solid-state batteries. But such innovations will take time, a luxury that TSLA stock does not have.
Dependency on Mass Appeal Hurts Tesla Stock
Range Rovers and Maseratis are among the most beautiful cars on the road. They’re also some of the least-reliable offerings. Yet they remain desirable because of their consumer base. Essentially, the people who buy such cars can also afford their problems.
I probably wouldn’t be that alarmed if Tesla stock was levered strictly to their original customer profile: rich yuppies. A recent academic study pointed out that the average EV owner has a household income of $140,000. These are folks that don’t care about capacity reduction because they probably don’t drive that much. And they probably live in a southern Californian paradise.
But Tesla isn’t in the business to move Maseratis. They made a huge deal about the Model 3, their affordable EV for the masses. Thus, the TSLA stock price moved on rumors and news about Model 3 production stats.
Here’s my question: What happens to those new owners who didn’t anticipate the EV platform’s quirks and issues? After all, not everyone lives in southern California. Certainly, not everyone makes $140,000 a year.
And while Tesla and other EV makers crank away at these issues, the old internal-combustion engine is still making strides. I’ll bet that many disappointed Model 3 owners will revert to traditional cars. When that happens, it might be lights out for TSLA stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.