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Tesla’s Cybertruck Is More Show Than Dough

The drop of TSLA stock after the Cybertruck event was justified

Tesla’s (NASDAQ: TSLA) new Cybertruck recently made many headlines. Those who are bullish on Tesla stock focused on the bells and whistles that come  with the futuristic-looking automobile. Tesla CEO Elon Musk even posted a video seemingly showing the Cybertruck pulling a Ford (NYSE: F) F-150 uphill during a tug-of-war battle.

Tesla's New Pickup Could be a Much-Welcome Revenue Growth Trigger
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As most owners of TSLA stock have learned, everything Elon Musk says should be taken with extreme caution. The Cybertruck is the latest example of  investors getting caught up in Tesla’s hype and ignoring the actual impact the news will have on Tesla’s numbers and on Tesla stock.

Tesla’s Claims

Since the Cybertruck’s launch event, Musk has claimed Tesla received 250,000 preorders for the Cybertruck. Of course, this is the same person who claimed the Cybertruck’s windows were “unbreakable” at the launch event, an assertion that was proven incorrect, and said he had “funding secured” for a Tesla buyout last year.

Longtime owners of  TSLA stock know by now that, at best, Musk is optimistic to the point of delusion.

The tug-of-war video is another example of that characteristic. Almost immediately, critics jumped in to pour cold water on the test. The test involved a four-wheel-drive Cybertruck and a two-wheel-drive F-150. The F-150 used in the test also seemingly had a 2.7-liter V6 engine, making it nowhere near the most powerful version of the truck. Finally, the Cybertruck’s heavy battery packs almost definitely mean that the F-150 was lighter than Tesla’s vehicle.

The video was a commercial for TSLA and nothing more. Until the truck hits the market and investors get real-world feedback on it, there’s no way to tell which of Tesla’s claims about the truck are false or misleading.

An Analyst’s Take

Tesla enthusiasts love the truck. Tesla stock has fallen meaningfully  since the launch, so the market seems to disagree.

CFRA analyst Garrett Nelson says he doesn’t think the Cybertruck will be very popular.

“The vehicle won’t be available until late 2021, but we’re skeptical it will be successful from a sales perspective absent an exterior re-design,” Nelson says.

He says the specs on the vehicle look good, including 250 miles of range a towing rate of 7,500 pounds and a zero-to-60 miles per hour acceleration time of 6.5 seconds.

But all those numbers come from Tesla. The truck also has unbreakable windows, according to Tesla. And it will cost $39,900,  TSLA. stated But Tesla also originally claimed the Model 3 would have a $35,000 base price. That $35,000 Model 3 ended up taking an extremely long time to launch and having far fewer features than originally promised.

Nelson says Tesla stock will likely continue to follow the same trajectory it has in the past before and after big media events. Specifically, TSLA stock usually trades higher on the hype leading up to the events and then drifts back to reality after excitement about them dies down.

CFRA has a “hold” rating on Tesla stock and a $320 price target on TSLA.

Who Wants to Buy the Cybertruck?

Assuming Musk’s claim of 250,000 preorders is true, the biggest question for Tesla stock bulls is, who are these buyers?

Former hedge fund manager Whitney Tilson says truck enthusiasts likely won’t want to have anything to do with such a weird design.

“Who’s going to buy this? Not the wealthy, coastal, environmentally conscious elites who are Tesla’s current core customers… nor folks in Middle America who buy most regular pickup trucks,” Tilson says.

In fact, the Cybertruck is a major departure from Tesla’s typical automobile designs. The Model X and Model S in particular are sleek and sexy and give off a vibe of luxury.

My guess would be that despite Whitney’s skepticism, the vast majority of the cybertruck preorders are coming from existing Tesla customers. In other words, the truck may not be generating significant new sales for Tesla. Instead, it could be cannibalizing sales of its higher-margin Model S and Model X vehicles.

How to Play Tesla Stock

Love it or hate it, the Cybertruck won’t impact TSLA stock for at least another year. Given Tesla’s production track record, maybe two years is a safer bet.

In the meantime, the stock’s trajectory over the next year will likely hinge on whether or not TSLA can consistently be profitable, as it was in Q3.

I have said all year that TSLA stock is too unpredictable and volatile to buy or short. I would recommend that investors take the same approach to TSLA stock that I plan to take with the Cybertruck: stay away from it.

As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/12/teslas-cybertruck-is-more-show-than-dough/.

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