In strictly financial terms, Tesla Motors Inc (NASDAQ:TSLA) should be doing well right now. Its third-quarter report showed accelerating revenue and an actual profit, $21.9 million, on revenue of $2.298 billion. But Tesla stock has never traded on financials. It trades on perception.
And the perception now is that its enemies, led supposedly by President-elect Donald Trump, are about to gang up and squash it.
Skepticism is especially pronounced regarding SolarCity Corp (NASDAQ:SCTY), which CEO Elon Musk finally finished acquiring this month. SolarCity makes solar power systems. Trump hates solar power, and will end subsidies, thus the new acquisition will become a drag on results. Or so goes the thinking.
There also is growing belief that the Tesla Model 3, the $35,000 sedan on which it has hundreds of thousands of orders, with deposits, won’t make it to market on the Musk timetable.
That may all happen, but like solar power itself, Tesla stock has come a long way, and it may prove more difficult to kill than the skeptics believe.
Gearing Up for the Fight
“First they ignore you, then they ridicule you, then they fight you, then you win.”
Musk has reached the third stage in Gandhi’s famous aphorism. Adversaries are no longer ignoring or ridiculing the company, they’re fighting back.
Car dealers see Tesla’s direct-to-consumer sales as a direct threat to their franchise system. Three states have passed laws against its showrooms, and Virginia dealers are going to court. This is important as Tesla shifts its stores to selling Powerwalls and SolarCity roofs, rather than just cars.
TSLA is no longer getting a pass from financial regulators. The Securities and Exchange Commission has fined it for not releasing standard data on stock-based compensation in its financial statements, or the way it handles leases. This could make it harder for the company to report profits in the future.
Then there are the hackers. A Norwegian company’s demonstration of how a thief could create a malicious app, post it on a compromised Wi-Fi hotspot, and gain control over a victim’s Tesla drew headlines, but the problem is less with Tesla than with Alphabet Inc (NASDAQ:GOOGL), whose Android operating system is easily exploited.
Still, it means analysts like Adam Jonas of Morgan Stanley who used to cheer on the company are now cutting their price targets, and Tesla stock has been unable to crack $200 per share this month.
Tesla’s April high of $265 seems a long way off.
TSLA Bears’ Time Is Running Out
Nonetheless, the skeptics are late to the party. Tesla’s debt levels are declining, and its operating cash flow is now positive. They would seem to be predicting a crash just as the plane takes off.
The Model 3 is coming to market — maybe a few months later than anticipated, but it is coming. Electric vehicles are no longer curiosities, but a real presence on American roads, and this is creating a “reverse oil shock,” with some analysts believing demand for gasoline is about to peak.
Tesla now owns the upper end of a growing market, meaning it can hike prices. TSLA is buying a German outfit, Grohmann Engineering, to make Musk’s dreams of efficient production a reality. Autopilots are no longer just a curiosity, and Tesla’s updating of its software is about to become a routine event.
Then there is solar, which the skeptics insist will kill Tesla with the end of subsidies. Again, the skeptics may be too late.
This is an industry with 209,000 employees and installed prices now falling below $2 per watt. The “soft costs” that skeptics are focused on are what SolarCity’s new “solar tile” system is designed to cut, and at utility scale, installed costs are already getting near $1 per watt.
More than 30 gigawatts of utility-scale capacity is in the pipeline — more than twice what is already installed.
The Real Problem With Tesla Stock
Tesla’s real problem is that, as it continues to achieve its goals, it will be valued increasingly alongside the other companies in its space, and no one wants auto or solar stocks. First Solar, Inc. (NASDAQ:FSLR), the U.S. industry leader, sells at price-to-earnings ratio of less than 7.
Ford Motor Company (NYSE:F) commands an even lower valuation.
The problem for Tesla investors isn’t that Musk is not achieving the company’s goals. It’s that achieving those goals is not valued by the market.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
