I’ll admit it. I’m a huge Elon Musk fan.
He’s no Einstein, but a lot of people think he’s close.
He’s no Nikola Tesla either. He’s smarter than the namesake he chose for his EV company.
And when it comes to SpaceX, Musk’s Space Exploration Technologies Corporation, it’s hard not to acknowledge he is defying gravity with his reusable rockets constantly piercing the atmosphere.
But that’s not the same thing as reversing gravity, which is what he’s got to do to save Tesla’s stock.
Before all the Tesla fans out there start hating me… I’m a huge fan of Tesla cars. They’re superfast, they’re super-efficient and some models are super cool.
But I think Tesla’s done.
The stock is in a wicked two-year downtrend. And as most investors know… “The trend is your friend.”
In other words, betting the stock is going to escape gravity here is like pushing on a string.
Tesla’s stock fell from $414.50 on November 1, 2021, to $101.81 on January 6, 2023.
That’s a drop of $312.69… or 75%.
Yikes!
Sure enough, the stock bounced, got close to its $315 resistance – close but no cigar at $299.29 – and faded back down to $212. It tried to rally, drifted back down, tried to rally again… each time making lower highs until third quarter earnings came out in October.
And with that… Tesla’s fate was sealed.
The good news in the earnings report was that total revenue was up 9%, but not so good was that auto revenue was up only 5%.
Operating expenses were up 43%… and capital expenditures up 36%.
What was down, big-time, was free cash flow. That fell by a frightening 74%. And operating margin fell 9.6%.
Musk was downbeat on the earnings call, lamenting higher costs, slowing sales and slowing growth.
Not the positive guidance investors were hoping for.
One bright note – which I’m about to throw cold water on – is the company is supposed to make its full-year deliveries number of 1.8 million vehicles. That would be a record. Musk says it could be 2 million.
Unfortunately, that “good” news is now “bad” news for Tesla.
The more cars they make, the more inventory they accumulate, the more they’re going to have to cut prices, the deeper their profit margin’s going to fall and the faster they’re going to go through cash.
Tesla’s already cut prices a few times in 2023, slashing stickers on their S and X models by 19%.
And if Tesla bulls think deliveries of the new Cybertruck, due to start reaching customers later this month, will launch the stock, they might want to think again.
The truck is unproven. Period.
Sure, demand was high and pre-order numbers were amazing, but now the company says they’re going to make buyers sign an agreement that they can’t sell the truck for a year. Why? Because Musk doesn’t want everyone still waiting for a Cybertruck to pay up exorbitantly in the secondary market.
That’s interesting and novel. And likely stupid.
What if there are problems with the truck? What if you have to sell it, for whatever reason, and you can’t?
Would you buy an unproven vehicle you may hate but can’t sell?
And yes, the Cybertruck is bulletproof, which is a must-have feature if you’re driving into a war zone.
But demand for trucks is full of holes. Ford’s Lightning all-electric truck, the new F-150, the most popular and bestselling truck in America by far, is suffering from poor sales. Ford cut shifts at its Rouge Electric Vehicle Center, where Lightnings are made, because sales were down 46% year over year in Q3.
The outlook on Tesla is so cloudy, the company’s biggest cheerleader, Cathie Wood and her Ark funds, just dumped a million shares.
HSBC analyst Michael Tyndall just initiated coverage on Tesla with a “Sell” rating and a $146 price target.
Ouch.
So if you own Tesla shares… make sure you have an exit plan.
Maybe a stop loss at $195 will work for you, provided you bought shares a lot lower. If you bought shares a lot higher, good luck.
Tesla bulls… you’ve been warned.
— Shah Gilani
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Source: Total Wealth Research