Elon Musk Is Erratic, but He’s Also Right About Tesla Stock Being Too High

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It’s been a busy week for Tesla (NASDAQ: TSLA) CEO Elon Musk. TSLA stock skyrocketed after the company reported a surprise profit in the first quarter.

Elon Musk Is Erratic, but He's Also Right About TSLA Stock Being Too High

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Then it tanked after Musk inexplicably tweeted that “Tesla stock price is too high imo.” Then it rebounded because Tesla buyers don’t care what the stock price is.

Musk’s Joe Rogan podcast appearance likely reassured many TSLA stock investors that Musk is not off his rocker after his strange tweetstorm last week. But beneath the clickbait headlines, some of Musk’s recent comments, his persistently erratic behavior and news that Tesla has shut down production in China are hinting that Tesla may have a big problem.

“American Fascism” and TSLA Stock

On the surface, Tesla’s first-quarter numbers were very impressive. I even went as far as saying it may have been Tesla’s best quarter ever, given the circumstances. However, red flags started flying almost immediately. In Tesla’s earnings call, Musk went on a rant about social distancing measures.

“If somebody wants to stay in their house, that’s great,” Musk said. “But to say that they cannot leave their house and they will be arrested if they do, this is fascist. This is not democratic, this is not freedom. Give people back their g**d*** freedom.”

Musk has since doubled down on those comments on Twitter and the Rogan podcast.

Musk took some heat for what some critics called selfish and dangerous words. Libertarians praised him for his defense of freedom. But I believe Musk’s comments aren’t about ideology. I believe he’s trying to rally his army of followers to start pushing for the economy to fully open back up.

Tesla isn’t the only company that is hurting from the shutdowns, but it’s not in nearly as good of a place as others. Competitor General Motors (NYSE: GM) just reported $33.4 billion of liquidity at the end of the first quarter and still suspended its dividend and announced a $4 billion debt offering.

Tesla has no dividend to suspend. It recently said it has $11.6 billion in liquidity, yet the company’s most recent 10-K filing suggests its useful liquidity could be closer to $4.2 billion.

It burned nearly $1 billion in the first quarter. That cash burn will likely spike in the second quarter due to the “fascist” shutdowns.  With both U.S. and Chinese factories completely or partially shut down at this point, Tesla is hemorrhaging cash. It’s no wonder Musk is suddenly a vocal libertarian.

TSLA Stock Price

Many people are also writing off Musk’s comments about Tesla’s stock price as “Elon being Elon.” After all, it’s not the first time Musk has commented on Tesla’s absurd valuation. Tesla’s $16 million GAAP profit put its current earnings multiple at around 9,000, so Musk is certainly not wrong in his conclusion.

But like with the fascism comments, there may be an ulterior motive behind Musk’s tweet on the share price. Tesla might need to raise some serious capital soon. At $780 per share, it’s possible that Wall Street bankers have told Musk that there’s not much demand for TSLA stock.

If Tesla is forced to price an equity offering at a huge discount to Tesla’s share price, investors may see that the company’s seemingly unlimited supply of capital is actually limited, at least at the stock’s current valuation. However, if Tesla’s stock prices trade lower organically, it may be easier for the company to raise capital without sounding alarm bells.

How to Play Tesla Stock

Of course, nobody knows why Musk does the things he does. He’s such a master at branding and media manipulation that investors can’t even take his words at face value. But my theory is that he knows exactly what he’s doing with his recent comments. The “Elon being Elon” excuse gives him all the plausible deniability he needs to avid the fallout.

In my mind, the best-case scenario for TSLA stock investors is that Elon is just being Elon. But CFRA analyst Garrett Nelson says Musk’s lack of focus is a risk regardless.

“Musk’s frustration with the stay-at-home order affecting Fremont was palpable on TSLA’s Q1 call, and the uptick in erratic behavior could weigh on the shares,” Nelson says.

At worst, Musk’s behavior is a sign that he is pulling out all the stops to navigate what could be an extremely difficult period for Tesla and its investors.

TSLA stock investors may not know for sure what’s going on until it’s too late. I think at this point, I agree with Musk. Tesla stock price is too high imo.

Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan was long GM stock.

Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.


Article printed from InvestorPlace Media, https://investorplace.com/2020/05/musk-is-erratic-tsla-stock-too-high/.

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