Tesla (TSLA) entertains the heck out of me. I used to get so worked up over how the market was letting such a poorly run enterprise run its stock into the stratosphere. I'll never buy the stock, I gave up on letting it get to me a while ago. Now I simply enjoy the amusement.
It's the ultimate irony to me that the catalyst that might finally drive some realism into the stock price won't be consistent failures to meet production goals, or the debt payments Tesla needs to find cash for next year. No, the big thorn that seems destined to take down Tesla is Elon Musk's incessant commentary.
The man that created tens of billions in market capitalization for an unprofitable enterprise through sheer salesmanship is going further and further down a road that will destroy it. With each tweet, every absurd statement, every promise that cannot be kept, Musk is destroying the credibility that Tesla so desperately needs in order to succeed. With further Model 3 shortfalls, that daunting debt payment next year, and self destructive voice at the helm, I truly believe TSLA can find $230 a share by Christmas. Tesla shares dropped by 2.8% on Wednesday, closing at $280.74. They were hovering at $380 less than a month ago.
My basis really shouldn't need to go any further than the fact that Musk renewed his confrontation with that British diver that helped rescue children from a flooded cave by calling him a "child rapist". What this has to do with inducing car sales is beyond me. It all stems back from Musk wanting to put one of his techy inventions (a mini submarine) into the public eye by getting it used in the rescue attempt, and the diver declined the offer. He also referred to it as a "PR stunt". Musk's seeming perpetual overreaction further demonstrates my long held belief that he is not mature enough to manage a car company. To the naysayers who will call Musk a "visionary", and Tesla a "tech company that will encompass the future", show me a revenue stream bigger than their auto sales. Right now, they're a car company, and car companies cannot get drawn into these sorts of public antics. This is especially true if they want to ramp up into mainstream sales figures.
After the stock decline today I can't help but feel these comments have something to do with it. The man's focus has shifted; and not in a good way. Either the stress of production pitfalls has finally broken him, or he just doesn't care anymore. Either way, there are problems ahead for the stock.
My other long held contention that competition would squash Tesla's market share is coming to fruition as well.
Daimler (among others) is going to capture their entire demographic
Tesla's products cater to a certain type of consumer. They're climate conscious, idealistic, and typically wealthy. You need to have a little bit of cash at your disposal in order to afford a $40,000 car that drives less than 350 miles before needing to be plugged in. That's sort of limited space within the car buying world. Any large competitor to them is a real problem. Daimler's (DDAIF) introduction of its new Mercedes electric crossover is exactly what I'm talking about. This, coupled with Jaguar's I-pace electric vehicle, are just the start of the onslaught of reactionary EV's that major manufacturers are going to pump out just to make sure Tesla can't touch their market share. The established dealer/maintenance network of these luxury brands, coupled with their quality and loyal following, make Tesla a lost cause in my eyes; and I'm not even a fan of electric cars. As these luxury brands (with Porsche also in the hunt) infringing on Tesla's higher end lineup like the Model S and Model X, I expect cash disruptions to the segment that Tesla uses to "kind of fund" its operations.
The company needs a high stock price in order to raise capital
Eventually Tesla is going to need capital. I completely believe it's possible that the company surprises people in the third quarter and reports a positive net income, but it won't be an income that finances their operations. More than likely, it'll be a symbolic profit forced together by cost cutting, and penny pinching anywhere they can. But if the company wants to build electric semi's on a scale that major transports will use them, they'll need big time cash. If they want to ramp the Model 3 to sell millions of cars a year like the big boys, they'll need more money. There are just so many variables and situations where this company is going to be cash intensive, and I don't see how they don't raise funds at some point. To that end, the dilution could only get worse as the stock price dwindles like it is.
I have written before about the company's debts coming due next year. As these convertible notes worth more than $900 million reach maturity, Tesla is going to need a fair bit of cash to pay them if the stock stays where it is right now. They'll need around $360 a share to convert the notes and avoid paying a lot in cash (or new debt). If Musk keeps up his charade of pointing fingers in an almost Trumpian fashion, I don't see how the stock gets there. There are no real business successes driving it, and everything has really relied on Musk's ability to sell the story. Now that he is losing face with the markets, I think the stock has lost its catalyst. Whereas a month ago Musk was going after the shorts, today they're getting exactly what they wanted.
Trading at around $280 a share, with no real financials backing the pricing, I see no reason the stock can't lose another 17% and hit $230 a share; if not lower. What reason does the stock price have to climb? They keep missing production goals for the Model 3, and have a ton of debt payments coming up that they most likely don't have the cash to cover without financing. I'm sorry but this is just a dumb stock to buy. Musk is more concerned with bantering with a scuba diver who saved lives rather than facing facts. With an apparent lawsuit on the horizon, his life (and time) are about to get even more complicated. Its demonstrative of his character, and gives me zero confidence in the enterprise. Bear in mind I'm not even touching on the absurd PR stunt that was the privatization idea.