The Wall Street Journal reported Thursday morning that T. Rowe Price (TROW) had sold 81% of its stake in Tesla (TSLA) in the first quarter, leaving the Baltimore fund giant with only 1.7 million shares as of March 31. As Tesla shares hover around a 52-week low, investors should be following the actions of the giants in the fund management industry.
I certainly do not have the time to count them all but, including this one, I have written at least 75 columns on Tesla over the past five years, and the total is probably closer to 100 now. I keep coming to the same conclusion -- TSLA shares are wildly overvalued -- but it is easy to create an echo chamber in one's own mind. As an active asset manager, it is more beneficial for me to occasionally listen to what others are saying or, even more productively, note what they are doing.
So, as The Journal noted, T. Rowe was dumping Tesla shares while investing in other autonomous vehicle plays, including GM's (GM) Cruise division and Aurora Innovation. Does that mean T. Rowe was not enamored of Elon Musk's "1 million robotaxis on the road by 2020" proclamation at the company's recent Investor Day? Well, I don't know that for sure -- because that event occurred after the end of the quarter, and funds only report holdings once a quarter -- but TSLA's chart is not telling any lies these days.
The massive plunge in TSLA shares of late indicates that Wall Street has lost faith in this company's ability to execute on disruptive technologies, even after the company's recent $2.7 billion capital raise. Is there more downside for Tesla shares? Oh goodness, yes.
The issue here is sustainability. Musk's ability to raise capital in the face of negative cash flow is extremely impressive to me, but that capital merely serves to replace burned cash, not to fund innovation. None of my car industry contacts can vouch for Tesla's claimed "three-year lead" in autonomous vehicle technology architecture. With capital expenditures of just $280 million in the first quarter, Tesla has not exactly been spending heavily to grow such infrastructure.
Tesla lacks the size to compete with the global automakers but, more critically, lacks the capitalization to be a global automaker. Tesla management's admission that the company was carrying 30 sales days' worth of inventory at the end of the first quarter was telling. For at least two years that figure was effectively zero as first-adopters snapped up Model 3s as quickly as Tesla could build them. Those days are over. Working capital is now a headwind for Tesla instead of a tailwind, and 27 years of following this industry have taught me that it is insufficient working capital, not excessive long-term capital, that kills car companies -- at least until governments bail them out.
No entity is going to rescue Tesla, but there is a school of thought that one of the other carmakers -- as slow to embrace battery-electric technology as they have been with every other technology in the past quarter-century -- could view Tesla Motors an attractive add-on. It is a great brand, and Musk's nurturing of that brand almost entirely through social media and the Internet offers a lesson for all consumer products companies.
But I believe it is unlikely that a major OEM would invest in Tesla. The bigger problem for shareholders -- both retail investors and massive players like T. Rowe -- is that it is impossible to invest in only Tesla. Since February 2017, it has been Tesla, Inc. SolarCity continues to report lower MW-hours added every quarter, as well as producing results from its ill-fated Gigafactory 2 venture in Buffalo with Panasonic (PCRFY) that are simply laughable.
When the epitaph for Tesla, Inc. is written -- and the market seems to be writing the preamble thus far in 2019 -- it will be Tesla's board's decision to allow Musk to bolt on a money-losing, unrelated company in which Musk owned the plurality of the shares and his cousin (Lyndon Rive, who is long gone from the company) was the CEO that was the beginning of the end.
As major investors dump shares of Tesla, Inc. I still have friends in the investment arena who believe that the inarguable fact that Tesla Motors makes really cool cars offsets all the negatives. They are wrong. Read a chart and put your investment dollars elsewhere.
