Taking its name from Serbian inventor and engineer Nikola Tesla, the electric vehicle maker Tesla (NASDAQ:TSLA) has attempted to live up to this once-in-a-lifetime intellectual. While a noble goal, the problem for TSLA stock is that management lacks a cohesive strategy. Without one, it’s difficult to imagine the company gaining ground longer term.
Tesla founders Martin Eberhard and Marc Tarpenning have a deep appreciation for the company’s namesake. In an old post from Tesla’s website, they stated:
“Without Tesla’s vision and brilliance, our car wouldn’t be possible. We’re confident that if he were alive today, Nikola Tesla would look over our 100 percent electric car and nod his head with both understanding and approval.”
Undoubtedly, the founders were inspired by Nikola Tesla, particularly his innovations regarding electrical engineering. However, I’m not so sure about the last sentence.
Although Tesla set out to create a global radio and telegraph system, he did so with one caveat: The associated equipment would be inexpensive, and therefore available to the masses. This is what separates Tesla from Tesla stock, and it’s a crucial distinction.
TSLA Stock Is an “Affluent” Investment
A major reason why I’ve become bearish on Tesla stock is that the underlying company contradicts itself. Clearly, they built electric vehicles to appeal to the masses and disrupt traditional fossil-fuel automakers.
For instance, management developed the Model 3 to sell to a broader audience. Thanks to technological advancement as well as the benefits associated with economies of scale, TSLA was on its way to creating a reasonably affordable (and stylish) EV.
Unfortunately, production issues kept pushing the Model 3 date backwards, aggravating both customers and stakeholders of TSLA stock. Eventually, the company did deliver on its promises, albeit after incurring significant cash burn.
However, a more pressing question is this: Why did Tesla bother to make the Model 3 in the first place? One of the biggest detractors against EVs is the lack of infrastructure. Although organizations have expended efforts to accommodate this new tech, we’re far away from realizing this dream. According to Forbes contributor Daniela Urias:
“Investors in the space are grappling with an inefficient business model where the cost of installation of EV technology is too high and consumers can’t charge their vehicles at cost-efficient levels. The end result is that utilities, best positioned to handle this, have skirted the issue entirely, private investment is low and state incentives are still nascent.”
In other words, EVs are only beneficial to the affluent. Actually, I’m okay with this. But the problem for Tesla stock is the fundamental mismatch. If it’s not sustainable to sell EVs for the masses — only 37% of rental housing units have garages or carports — management should have killed the project before it hit the blueprinting phase.
Instead, we have a mess of an organization that doesn’t know what it wants.
Tesla Vehicles Don’t Save the Environment
Part of the mainstream appeal for Tesla EVs is their environmental impact, or lack thereof. Since EVs don’t produce emissions, they’re cleaner, at least on paper.
I say on paper because as a net impact, EVs aren’t as green as many people think they are. After all, the electricity that these cars run on must come from somewhere. And that somewhere could be a dirty coal plant. According to the U.S. Energy Information Administration, we get 27.4% of our electricity from coal.
So much for “clean” EVs.
Moreover, Dawn Stover of the Bulletin of the Atomic Scientists had this to say:
“The only genuinely sustainable energy scenario is one in which energy demands do not continue to escalate indefinitely. As a recent commentary by Jane C. S. Long in Nature pointed out, meeting ambitious targets for reducing greenhouse gases cannot be accomplished with ‘piecemeal reductions,’ such as increased use of wind power and biofuels. Long did the math for California and discovered that even if the state replaced or retrofitted every building to very high efficiency standards, ran almost all of its cars on electricity, and doubled its electricity-generation capacity while simultaneously replacing it with emissions-free energy sources, California could only reduce emissions by perhaps 60 percent below 1990 levels — far less than its 80 percent target.”
Put another way, TSLA stock fails on the environmental front as well. Again, this confirms that EVs are rich people’s toys not suitable or appropriate for the masses.
Tesla Stock Has an Identity Crisis
I don’t think it’s any coincidence that Tesla has lost so many high-level executives. Without a cohesive, longer-term strategy, it’s almost impossible to inspire confidence.
Ultimately, management should have stayed in its niche lane, catering only to well-heeled customers. Although the idea of an EV future is inspiring, it’s just not going to work without considerable effort and cost. While Tesla may have beaten other automakers to the punch in developing an EV for the masses, it was a Pyrrhic victory: The underlying automotive market likely cannot support EVs for many years to come.
Unfortunately, this identity crisis makes TSLA stock a risky bet. The company invested heavily for mass production, yet its EVs are optimally geared toward an exclusive clientele. Nikola Tesla may approve of the underlying tech, but he’s certainly no fan of what the company that bears his name has become.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
