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Tesla is Bleeding to Death, But Everyone Loves It
Tesla's in the news every single day. The company is heralded as "the future" of the auto industry. If you think Apple is a cult, just watch the live stream of a Tesla event.
I don't know about you, but this picture of a burning car is the first thing I think of, every time I hear someone mention the automaker Tesla.Sound like fun to you?
If you're an individual investor with any shred of savvy, I hope you've been watching the Wall Street and Washington DC darling very closely over the past several months.
Not because the company deserves a single penny of your hard-earned investment dollars (it sure doesn't), but because you should be watching the company's stock price with interest, wondering how big the crater is going to be on the surface of the market bottom once this bad boy finally levels out. Take a look at what's going on.
Investors have lost a quarter of their money in the past four months.
A friend of mine is always asking me what I think about Tesla as an investment. My answer is always the same.
"You're going to get burned--maybe even literally."
I distinctly remember speaking with him last September about Tesla. I told him to stay as far away from any of Elon Musk's tech companies as humanly possible.
What has happened since September? The chart speaks for itself. Tesla is down more than $60, or 20% in just under a month.
To be honest, there is (or rather, was) a shred of legitimacy to owning this company at some point in the past. And, I'm sure that someone out there has made a killing "investing" in this company's stock.
But to have accomplished that, you would have needed to invest years ago, before the average, individual investor even started seeing the headlines that the Elon Musk, the company's CEO-playboy-philanthropist- billionaire-superhero has been making across the globe with his flashy car shows, pipe dream robotics experiments, and futuristic transportation theories.
The Tesla Lesson on Investing
Let me lay out a simple truth for you, which I hope you'll take to heart.
A company is only worth investing in if it has a rock-solid balance sheet, pays you regular and increasing dividends, gives you extra dividends with stock buybacks, and if its business is recession-proof.
Only if a company has proven to you that its products are not a fad, its business model is legit, and if it is independent from the cushions of government subsidies and tax breaks, should you ever even consider putting your hear-earned money in its hands.
Tesla has none of this.
Its products--high-end, almost futuristic, expensive electric cars--are sold only to a niche, high-end market. That's not what I call "recession-proof."
It automotive business model is leveraged on several things. First, the idea that gas prices will always be high, and thus its electric product will be attractive as a cheap alternative. Second, Musk thinks that the rich will always want something new and cool, and thus, his cars. And lastly, there seems to be a notion that no other company can compete with Tesla's products.Well, here's some news for you, Mr Musk.Other major auto manufacturers have entered the market in electric vehicles right alongside you, and their cars are just as cool, but look much better. Some notable names are Mercedes, Audi, and BavarianMotorWorks.
And guess what else? Gas prices are at six-year lows. And don't plan on seeing them go anywhere much higher for probably most of this year. The International Energy Agency has estimated that demand and supply won't reach a price-beneficial equilibrium until sometime in early Fall of this year, barring some international catastrophe which would cause waves in the market.That makes the appeal of an electric car, on the basis of alternative energy, much diminished. But then again, what person who's worried about the price of a gallon of gas could even afford a Tesla vehicle?
Back to stock prices. Tesla's stock price is sitting right now around $200 per share. That's a $70 per share decrease from just over four months ago. That's not insignificant. The price had been severely overblown and bubbled for most of 2013-2014, and it seems that only recently, Mr Market has gotten some sense knocked into him.
Some bigger fish in the financial pond may be wising up as well. It appears JP Morgan's investment bankers are catching on now. Just this morning, they downgraded Tesla's stock to a "Sell." That means, they are recommending to their clients that they sell this stock out of their portfolio holdings. Put another way, they think Tesla, as a company, is going to present a much lower return on investment in the much near future.
Tesla's financial fundamentals don't look so good, it seems. My good friends over at Zerohedge posted this chart yesterday to illustrate a dangerous cash flow trend going on over the past year.
Something in Tesla's balance sheet is bleeding. The company is almost literally bleeding cash to death. But then again, what does a lousy $500 million in negative cash flow per quarter matter? Oh, that's right... I guess it matters somewhat to "investors."
The company recently reported its 2014 fourth quarter financial results. Things are looking very bad. Lower delivery on vehicles, lower revenues, lower gross margins, earnings per share were negative.... I could go on.
But the bottom line is, Tesla is on track to crack a total of $1 billion in total losses successively over the past four years. Who has gotten rich out of Tesla? It's engineers and designers got paid, sure. The janitors got paid.
But the investors aren't getting paid. And Tesla is is only surviving because it is milking the system of "Green energy" subsidies and tax breaks provided so stupidly by the government to spur investment in inefficiency technologies.
I'm not saying Tesla is going bankrupt... after all, Washington loves Elon Musk. They'd bail out Tesla in a heartbeat if it came down to that. Yes, Elon Musk has somehow found himself in the good graces of the Democratic party, despite being an epitome of capitalism and entrepreneurship... it's funny, because he and I could probably get along really well, were it not for his utter economic hypocrisy among his many business ventures.
You see, there's a common denominator among almost all of Tesla founder Elon Musk's most recent tech ventures. Take another of his start-ups, Solar City, which specializes in solar technology. Solar City is the epitome of malinvestment. The company simply can't turn a profit independently.
Come to think of it, no public solar company of any size, of which I am aware, is capable of surviving or turning a profit on its own. They all rely on high government subsidies and tax breaks in order to survive... and despite these breaks, they still experience a loss, year after year.
So how's this venture (Solar City) of Musk's doing recently? Yeah...
Looks freakishly like Tesla, actually. It's a 30% loss Year-to-Date.
Conclusions on Tesla's $1 billion in Losses
It angers me. It confuses me. And it makes me laugh, and want to cry, all at the same time... I'm very conflicted when it comes to this.
I want to see clean, alternative energy, such as electric and solar power, take off in a big way, because I care about the environment, I care about cheaper energy, and I care about the future... but I cannot fathom the stupidity of malinvestment going on in the financial sector when it comes to these companies. Until the technologies are further developed to make them more economical for average Joe, these ventures are, in my mind, illegitimate.
Investors and bureaucrats alike dump money into these tech companies, solely on the notion that these are the "technologies of the future."
They won't be the future until a barrel of gasoline reaches $400 per barrel, and the invisible hand of capitalism, entrepreneurship, and ingenuity find a solution to this problem.
Well, my tirade on Tesla and alternative energy has gone on for long enough. Let me know what you think about these things in the comments below, or on Facebook. If you think I'm wrong or full of crap, call me out on it. I'm happy to field your anger and apprehension.
Live long and invest,
Jeremiah
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