Negative Headline Roundup for Tesla
The bears are out in full force with what seems like one final opportunity to try and derail Tesla as it burns through cash in a race to launch the Model 3 to the mass market. Tesla has been the topic of discussion this week as the stock has plummeted about 18% in just the last 5 trading days. The car company which was valued at greater than General Motors last week, but this week has investors dumping the stock even as it is closer than ever to releasing its long-awaited product, has seen its share of bearish news this week. In the last few days alone, here is some of the news driving Tesla stock lower.
- Tesla's Model S and X deliveries missed the Street's expectations. Only 22000 cars were delivered vs the expected 24200. Tesla blamed the issue on its 100kWh battery packs, raising concerns that the company would have similar problems for the Model 3.
- Chinese-owned Volvo announced that it would stop designing gas-only cars by 2019 and that it would only produce hybrid gas cars and fully electric cars. Investors shuttered as this signalled on Wednesday that other car companies could follow suit, which would mean fierce competition for Tesla in 5 years to a decade from now. Volvo showed off its concept Electric SUV which may begin production in 2019.
- The most worrying aspect also came from Volvo and a host of other car companies which operate in China. China has low cost production of cars due to its low labor costs, which won't bode well for Tesla as it is located in the US. China also has a stronghold on Lithium production and charges a hefty 25% on imports making it difficult for a US-based factory to compete with Chinese-based companies in the world's largest automotive market. It could take years before Tesla has a production factory in China.
- Last week the government's National Highway Traffic Safety Administration (NHTSA) said that Tesla's Model X was the safest SUV of all time with a 5-star safety rating all round. Electric cars have an inherent advantage over gas-powered cars as the battery has a low center of gravity which would greatly reduce rollovers, and of course lacks flammable liquid gasoline. However this week, Dave Zuby from the IIHS had doubts of this claim saying that there were better choices than the Model S.
- Tesla's stock fell another 4% on Thursday after a 7% liquidation on Wednesday. This comes after Apple "axe" Gene Munster said that the Model 3 launch will be similar to that of Apple's first iPhone launch. Apple was ridiculed in 2007 when its ultra-expensive iPhone hit the market. Today the company faces fierce competition in the phone market, which has investors worried that Tesla may suffer the same fate given the competition from Behemoths like GM, Ford, Toyota, Volkswagen and Nissan - who have dominated the automotive industry as incumbents for years. Combined, these companies have more cash in the bank than the entire value of Tesla and can easily crush the car company.
- Tesla is burning though cash as it tries to release the Model 3. The car was originally supposed to arrive in 2020, but Tesla accelerated its expected launch by 2 years after pulling billions from the open markets. Tesla's cash-burn rate is astounding as it tries to double its Super Charger station footprint, open more service stores and scrambles to produce the anticipated Model 3 which is supposed to begin production tomorrow and ramp to 20000 units per month by December. This would be the fastest automotive ramp up in history and investors believe that it can't be done especially given Tesla's track record of delays and over-promising and under-delivering on time. Of course completely redesigned car from the ground up would have no chance competing against years of incremental improvements held by the in-market cars.
- Finally, investors are using the "buy the rumor and sell the news" strategy which is why they are furiously dumping the stock. Up until now, Tesla was in story mode - just a great story for the future. However now that the story is about to become a reality, investors want no part in it. Furthermore, after the Model 3, investors see a company with higher revenue, but no future growth. Currently Tesla hold about 0.1% of the global car market. Even if the company was able to sell 500,000 additional cars in 2018, it would have a 0.6% market share in the automotive industry. Investors are also worried about the product road map after the game-ending Model 3. Although Tesla has stated multiple times that it has plans for a Semi-truck, which would not compete directly with most traditional car companies, the Model Y which is an affordable SUV and could face fierce competition, and the Tesla Network which would emulate Uber's service with self-driving cars.
The Bottom Line: The headlines completely trashed Tesla stock just days before its Model 3 launch. The bears were out in full force citing that no company has ever ramped up vehicle production this fast, and thus it cannot be done. And that Tesla could face fierce competition from all of the major auto makers leaving no room for a new player in the space. On the other hand, the small 'cult' group of Tesla fans are left dumbfounded with a degrading stock as they think to themselves that perhaps Tesla is the fierce competition.