Why you should eventually “Short” Tesla
Tesla and its founder Elon Musk are the “new” sensations in the market. With 19 Billions cash on hand and a stock price of $630.85 (to the moment of writing this entry), Tesla is one of the hottest properties on earth.
1/ Management: Elon Musk has made a name for himself as a great manager and a visionary. With his ventures producing results, Elon Musk became the go to guy in revolutionizing management. It’s fair to say that he deserves this “status” and his name is some sort of guarantee that his companies will produce the goods.
2/ The Hype: Tesla is conceived under the assumption that it will become the front runner in matters of automotive emerging technologies. Innovation is the modus operandi of Tesla.
3/ Investors want to be part of the company’s “success” even if they are only participating in its “stock price” success.
Now my blog entry is about shorting Tesla and although I wrote much about the positive hype surrounding Tesla, now I’ll write about why I think that this hype is just a hype.
Car companies and suppliers make their money out of sales. That is their value. They might have the best technologies and the best hardware and software innovations. If they don’t sell, they don’t survive. And Tesla is no exception here.
You might call me an oldfashion, but I believe that the value of a company doesn’t come from WallStreet but from MainStreet.
1/ Tesla is betting hugely on the Driverless Cars Technology, and that’s where the problem begins. “Driverless Cars” is being sold as the greatest idea since the invention of the car itself. Yes cars are practical and yes an environment of driverless cars would be safer. BUT a lot of people love to drive their cars. The whole concept of the automotive industry is based on the driver’s experience. The Car Racing, NASCAR and Formula 1 are all products that catch the imagination of their followers based on the drivers performance. Of course the engineering part of those cars is important, but I doubt that any one would be interested in watching a formula 1 race with the cars driven by robots or automatically.
The New EU goals: The EU made it clear that the priority is to produce “cleaner” cars. Now Tesla is a major player in that area, but the other manufacturers are going to catch up with it. Classical car manufacturers are powerful enough to compete with any newcomer.
2/ The financial bubble: Less than 18 months earlier, Tesla was not the hot property it is now. The climb of Teslas stock price in that tempo is a kind of deja vu we saw with the housing market. Tesla is getting money pumped but the stock market is ruthless. If you don’t deliver the bubble will burst and when it does, the whole company will be in dange.
3/ The real market share: Tesla is a new player in a 120 year-old industry. Your “name” might be hip for a while but companies like Daimler, Porsche, Audi and Volkswagen..etc will soon catch up with you. That competition will take a part of the market in which you used to roam for free.
4/ How long to wait until the potential becomes a value? : Teslas money comes from the belief that its potential will translate into tangible value. But how long will investors have to wait to justify their investment ? If Tesla doesn’t deliver right away, would these investors stay or revoke their vote of confidence?
Finally, there is no doubt that Tesla is a great company, but it is not as good as what the stock market tries to make everyone believe. So Short is the main story here.