Julie Lamb, Senior Editor

About the Author Julie Lamb, Senior Editor

Julie joined Smarter Analyst across the world- all the way from Louisville, Kentucky- where she graduated with a Bachelor of Arts in English with a focus on creative writing from the University of Louisville.

Tesla Inc (TSLA) Has a Long Way to Fall; Here’s Why

Shares of Tesla Inc (NASDAQ:TSLA) just hit a new high- but could the sun soon set on Elon Musk’s Tesla empire? Tesla has always been a volatile stock, enticing short-sellers from the cracks. Conversely, the bulls charge on back of Musk’s lofty vision for the company. After all, the electric car giant was not built on a throne of coloring within the lines. Tesla backers are a particularly loyal group, as they flock to Musk’s ambitious goals for the company and a brand that carries with it a certain level of prestige. Even the legacy of champions one day can dim, and the polarizing electric car giant faces three key reasons why its empire could eventually topple:

  1. The race heats up for the top of the electric car maker leaderboard. Companies across the globe are vying in the electric car arena, and Tesla could soon have a bigger threat of cutthroat rivalry on its hands. The American giant towers on a reputation hinging on daring new car feats and a reputation that the sheer name of Tesla instills a sense of luxury and pride in the consumer who invests in not-just-any-car. Yet, consider that beyond the pond that first meets the eye is a bigger ocean out there with clashing rivalry whirring in Europe from the likes of BMW, Volkwagon, and Audi.
  2. Musk needs to prep for price battle. By the beginning of 2018, rumor has it Audi is readying to dish up its forthcoming E-Tron Quattro all-electric SUV. The marketing hyping up Tesla’s Model 3 is a not just luxurious experience, but an affordable one. Can Tesla stand against the flames of pricing opposition should the competition dial back on the expense? Consumers are always looking for the future hot commodity- but if the hip product is available at a more attractive price, they swing for it.
  3. The big financial picture. Yes, first quarter results proved to be a massive success with the electric car giant yielding its best performance for deliveries yet. Yet, what of initial signs of waning Model S revenue? Tesla achieved a peak hit in the fourth quarter of 2015, but it is a level that hasn’t been seen soaring at that momentum since. Model X sales have also not performed to stellar fashion as was supposed to be a big splash, with underwhelming domestic sales and Europe sales on a downturn just around the corner.

Meanwhile, it is worth posing the question: Might another stock dilution be underway soon? The launch of the Model 3 could be costly for the giant, leading to an operating loss this year. Musk’s brainchild is now on its fourth consecutive year of a net loss circling close to $2 billion. In a game of supply and demand, one cannot turn a blind eye to Tesla’s challenges- even taking under account its powerful legacy. Musk has made a name for going for the big gamble- but for the high rollers, eventually reality catches up to the dream.

Ultimately, the bears point to a gap when considering the cost required to make these technologically advanced vehicles and the reward Tesla reaps at the end of the day. Cash burn could trip up the great Tesla giant soon enough.

The Street seems to express reluctance on betting on the electric car giant, with most analysts predominantly viewing the stock from a cautious vantage point. Furthermore, Tesla shares represent greater downside potential than upside. TipRanks analytics exhibit TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. With a loss potential of 10%, the stock’s consensus target price stands at $274.55.

  • AJ Mekkunnel

    I humbly disagree. But good luck with your article.

  • Diego

    I’m afraid there is not much new substance here, with reasoning that is almost identical to that in articles from two and three years ago. It was not well-founded back then, and it is not now:
    1. The competition faces the same or higher production costs. It’s not like they can suddenly produce much cheaper than Tesla. The reverse is more likely. It’s unlikely they could offer a comparable product for less.
    2. Ehm, yes. Hence the Gigafactory. Do you know of any potential competitor whose battery production plans have gone past the announcement stage? The profit margin is best protected by having less expensive in-house battery production since the battery is such a high-cost component. Tesla is so far ahead on this that it might actually be more cost effective for other manufacturers to buy their batteries from Tesla instead of making their own from scratch. If so, part of their profit margin becomes Tesla’s.
    3. Tesla is still production constrained, not demand constrained. As long as every car that leaves their production line is already sold, I don’t think they have much to worry about. And note that this is achieved without spending a dollar on advertising. But, yes: With the approaching release of the Model 3, it is natural that some buyers may decide to wait, so orders on S an X might not keep rising as fast.

  • Senior Editor

    The author has a Bachelor of Arts in English with a focus on creative writing. All the sudden she’s an expert on the automotive industry and a stock speculator? I took a dump this morning with more knowledge regarding Tesla then her.

  • Diogo Franco

    Oh lordy lord Lord… You really are a disgrace of a writer… That fact that you misspelled Volkwagon (honey, it’s Volkswagen which in German means people’s car) explains the amount of knowledge you have on the subject… or at all…
    Now you have 2 choices, either correct it and create an illusion that your bachelors in Arts in English is real or own it and leave it as is and at least be honest about the fact that you have no clue.
    I wonder why you chose to write about something that is so far beyond your comfort zone… https://uploads.disquscdn.com/images/4d8f44422c48da3a244adac108ebf3ca98fdb12fbf78628d80fb10ea13301e5f.png

  • No Longer Here

    Somebody skimmed the more common “naysayer” articles floating around and generated a superficial distillation. None of this is realistic; mere sophomoric argument. Too bad, too…this is an exciting time to be writing about Tesla. I’d hate to look back 30 years from now and realize I wasted an opportunity to herald the next Big Thing and chose instead to predict it’s long decline.

  • gogo49

    All three points are not new but who of the cult followers below has an argument why those points are wrong? Who of THEM is an auto expert? Fact is, first movers often fail. Teslas liabilities went up by 10 billion just from 2015 to 2016, or 15 billion from 2013. Do your own math how much cash Tesla would have to make from some 500k cars to make up for all that burnt cash and at the same time keep the model offensives going. And to do that in a market where regular customers who don’t care about cult are targeted with cheaper cars. They will not pay extra $. Established OEMs will compete and can compete.

    • Blake Harrison

      I invest in Tesla not for returns but to support the company. For me it is a good company and i like it’s mission. I also like Musk (he is a likable person) and the way his business is conducted. It’s easy to be critical of Tesla and of Musk but if you have experience running a business you will sympathize with all of the mistakes, the learning lessons, the hardships, the public scorn, the backlash, the tough decisions and the growing pains. I hope my prediction comes true and Tesla breaks through to the next level and why not? What company is more deserved? What company is more innovative? Is there any other publicly held company out there that attracts more discussion? Tesla is the hottest topic right now. Even the neigh sayers are an indicator to me that Tesla is doing things correctly.

      • gogo49

        Fine statement. I have absolutely no problem with those who admire Musk for his chuzpe and drive. No problem also with those who like his cars. I know some. The cars are excellent and hats off to Musk for this achievement out of nothing. Yet, if numbers count, a cool assessment of the business is required.
        As this article was about the viability of his business, not the earth-saving ambition, I did not yet adress the question of how earth-saving it is. Quiz: when you charge a BEV, where does the power come from at this very instant?

        • Blake Harrison

          I understand where you are going with that. The grid is more eco friendly than combustion engines. Also I believe in earnest that the solar city acquisition is intended to remedy that problem and was not just a bailout as critics of the deal have suggested. Numbers do count however the stock price is itself a number and it also counts and it represents more than just quarterly figures. Tesla being the most obvious example of that principle today makes it a lightning rod for such investments in the same way that Apple was during its comeback. That is why you see the beyond inflated stock price… but that evaluation will only help to increase the likelihood of Tesla’s long term success. In the end it is impossible to know for sure what will happen tomorrow. The experts can do little to help us in this regard as they are experts on yesterday. If you make money investing you are either extremely bold and lucky or extremely shrewd and patient unless that is if you happen to get your hands on a Grays Sports Almanac.

          • gogo49

            Your response to the quiz is what I expected. But, sorry, wrong answer. On the grid, what you charge with is marginal power. Assume solar panels and windmills already feed into the grid all power they have, BEFORE you charge. This should be the case most of the time. Then clearly the additional (so-called marginal) power you draw inevitably comes from another source. If it is a nuclear power plant, fine. If not, it is going to be fossil power. Then the emissions at the power plant can be as big as if you drive with a combustion engine. Can even be higher. Many people don’t know how many coal plants jump in or increase their power on demand even in California. If the marginal power comes from a modern efficient natural gas plant, there can be a little advantage for the BEV. But not zero emissions as the sticker claims.
            Sorry to disturb.

          • Blake Harrison

            Sir or madam and fellow internet stranger… how can i debate the efficiency of plants vs engines? I am not an expert in this field of knowledge but I am informed. So at least, to my credit, there are a lot of reports that contradict what you are saying. Besides you did not address the solar panels on the roof with a battery in the garage surely the car would benefit from a complete home system. You might argue that the materials used to make such solar panels and batteries is harmful to the land however the materials to build fossil fuel plants and engines are similarly mined from the earth. As of yet I have not seen a clear counterpoint to BEVs becoming the primary method of transport for the future.

          • gogo49

            See my response to Diego.
            I know a lot of reports are wrong. This is why I’m trying tio educate.
            You may want to read this as as an introduction: https://energyathaas.wordpress.com/2012/04/17/marginal-vs-average-generation-the-case-of-the-electric-car/

        • Diego

          Re: Power source tangent: At this very instant, my car is being charged by my solar panels.
          Granted, that is not true for most EVs yet, but looking at the potential for development, where do you see more room to improve: Cleaning up combustion engines further or increasing clean energy fed into the grid with which to charge EVs? We live today, but should probably plan for tomorrow, don’t you think. What happens this very instant is infinitely less significant that the trajectory.

          • gogo49

            Case A: you charge your BEV with say 10 kW. Case B: you drive an ICE and send your 10 kW solar power to the grid.
            In Case A the non-green plants run at x GW.
            In Case B the non-green power plants run at x GW minus your 10 kW.
            Quiz: what is the emissions balance?

          • gogo49

            Clarification: I assumed your grid can take your solar power. If it can not (curtailment) then it is a different story.

          • gogo49

            One more: A detailed article on the topic of marginal power is found here http://iopscience.iop.org/article/10.1088/1748-9326/11/4/044007/pdf .
            If you are into economics, you may want to look for articles by Zivin, Kotchen and Masur. They have written papers on the health effects and their cost from an economissts angle, in which they employed marginal power analysis correctly. Not an easy read however.

  • To produce electric car you need batteries. Tesla made huge steps to produce batteries, other companies not. Other companies could provide good electric car, but they can provide only small amount. So they cant compete with Tesla for now.

    • john bonnell

      Panasonic makes batteries. Tesla sources from Panasonic