{"id":92529,"date":"2016-07-07T07:10:18","date_gmt":"2016-07-07T11:10:18","guid":{"rendered":"http:\/\/countingpips.com\/?p=92529"},"modified":"2016-07-07T07:10:18","modified_gmt":"2016-07-07T11:10:18","slug":"the-trouble-with-tesla","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/07\/the-trouble-with-tesla\/","title":{"rendered":"The Trouble with Tesla"},"content":{"rendered":"
July 7, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"The<\/p>\n

Tesla Motors Inc.<\/strong> (TSLA), the electric car company controlled by tech billionaire Elon Musk, had a string of rough weeks marred by three major issues that did quite a bit of damage to the company\u2019s reputation and valuation.<\/p>\n

In a short period of time, all kinds of concerns about the company have made the news, ultimately providing evidence for the very same case that we\u2019ve made at Wall Street Daily<\/em> for a while now: Though Tesla holds enormous promise, it is an extremely risky investment<\/a> at its current sky-high valuation.<\/p>\n

Tesla is simply not likely to be the next Apple<\/strong> Inc.<\/strong> (AAPL) \u2013 it\u2019s going to have enough difficulty as a successful automobile company.<\/p>\n

On the other hand, the march toward autonomous vehicles continues, despite the tragedy that occurred in a Tesla vehicle.<\/p>\n

So\u2026what actually happened to Tesla?<\/p>

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Tesla Abandons Good Corporate Governance<\/h2>\n

The first incident was the most alarming.<\/p>\n

Elon Musk announced that Tesla would acquire Solar City \u2013 another promising but unprofitable company controlled by Musk.<\/p>\n

Solar City installs solar panels on the roofs of homes, and sells the power to the homeowner and sometimes to the local utility company. The value proposition is that homeowners get some of the savings of a solar system, but not all of them. In exchange, they avoid the massive upfront cost of buying their own solar system and the costs of maintaining that system over the years.<\/p>\n

Solar City has been a popular option for many homeowners \u2013 about one-third of all solar installations done in 2015 were by Solar City \u2013 but so far it has not led to profits for the company, because raising the upfront capital for the systems has been more difficult than originally believed.<\/p>\n

To Musk, merging his two companies is apparently a \u201cno-brainer.\u201d<\/p>\n

Both are electricity-related, after all, and Tesla sells home batteries in addition to its cars. Musk envisions a single company that sells power to consumers, and provides them with a car that runs off that power.<\/p>\n

But Musk\u2019s synergies are a chimera.<\/p>\n

Solar City has over 300,000 customers, but the number of those willing to buy a $100,000 Tesla is likely very small. Even so, there is little to no reason to assume that those who do want both a solar system and an electric car would purchase them same provider. So, even if Tesla successfully ramps up production of its lower-cost Model 3, there\u2019s simply not enough of an overlap.<\/p>\n

That makes the proposed merger pretty suspect, even before addressing questions of each company\u2019s cash needs, which are considerable in both cases. Subsidizing Solar City\u2019s need for capital is not<\/em> a good use for Tesla\u2019s own, which was just increased with a share issue a few months ago.<\/p>\n

In fact, the proposed merger is an absolutely terrible idea, in terms of good corporate governance.<\/p>\n

Granted, Musk and those closest to him on the boards of the companies have recused themselves from any final decision, but the deal still stinks to high heaven of either hubris or insider dealing or both.<\/p>\n

Tesla\u2019s Autopilot Experiences Its First Big Failure<\/h2>\n

The next item on the list of grievances against Tesla came this past Thursday, when the company announced that the National Highway Traffic Safety Administration (NHTSA) was investigating the circumstances of a fatal accident involving Tesla\u2019s Autopilot feature.<\/p>\n

It\u2019s a tragic story: One of Tesla\u2019s biggest fans, and a technology maven in his own right, died when neither he nor the Autopilot saw a tractor-trailer that had pulled out onto the road ahead of him. The Autopilot feature didn\u2019t see the white trailer juxtaposed against a bright background, and failed to apply the brakes.<\/p>\n

As sad as the scenario is, it\u2019s a small and temporary setback for Tesla as well as for autonomous driving in general. Tesla has been very clear that its autonomous features are experimental, and that drivers should not surrender their situational awareness. And even taking into account this accident\u2019s highly unusual circumstances, Tesla\u2019s Autopilot feature is still safer on a per-mile basis than cars without such capabilities.<\/p>\n

Although a single crash is not going to overturn an entire company, the setback is real. There will be investigations, and lawyers, and probably poorly conceived legislation coming in on the heels of this accident.<\/p>\n

Producing Amazing Automobiles Is Difficult<\/h2>\n

Then, some more bad news arrived this week.<\/p>\n

Tesla announced its shipments for the quarter, which were a disappointing 14,370.<\/p>\n

The company had set a goal of 17,000. And it blamed the gap on an unusual number of cars in transit, but Wall Street wasn\u2019t buying it and sent the stock down, though it\u2019s since recovered somewhat.<\/p>\n

As it turns out, it\u2019s quite difficult to make a lot of automobiles.<\/p>\n

Tesla\u2019s production capacity has roughly doubled, and the company will make as many cars in the second half of 2016 as it made in 2015. But, investors are starting to realize that their goal of delivering 500,000 autos a year by 2018 is an overly ambitious one. That\u2019s another five-times Tesla\u2019s already-accelerated production in just 18 short months.<\/p>\n

Tesla\u2019s stock has remained almost exactly where it was when I wrote about the company 18 months ago, albeit with both big gains and big losses in the interim.<\/p>\n

I expect this same pattern to continue \u2013 there will be large peaks and valleys in Tesla\u2019s stock chart but it will be difficult for the company to sustain a much higher stock price until it demonstrates that it can actually make all those cars and that Musk has come to his senses about that terrible merger idea.<\/p>\n

And while I don\u2019t think Tesla stock is likely to appreciate sustainably, it is also too risky to short.\u00a0 Remember that this is a \u201ccult stock.\u201d Its owners are largely buying hope and promise, not profits. That means that those who short the stock can get squeezed by increased hype, even if the results don\u2019t justify it.<\/p>\n

Tesla is a great story, but stay away from the stock \u2013 both as a long and a short.<\/p>\n

Good investing,<\/p>\n

Greg Miller<\/p>\n

The post The Trouble with Tesla<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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By WallStreetDaily.com Tesla Motors Inc. (TSLA), the electric car company controlled by tech billionaire Elon Musk, had a string of rough weeks marred by three major issues that did quite a bit of damage to the company\u2019s reputation and valuation. In a short period of time, all kinds of concerns about the company have made […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-92529","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92529","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=92529"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92529\/revisions"}],"predecessor-version":[{"id":92550,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92529\/revisions\/92550"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=92529"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=92529"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=92529"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}