Owning Tesla Stock Is Like Owning “Negative Value”
Tesla fans are making the mistake of thinking that the stock price in some way is a sign that the company is finally turning the corner to becoming a sustainable entity. When in fact, nothing could be further from the truth.
As I wrote after Tesla’s previous quarter of “reported profits”. Tesla is still losing well over $100 million per month making cars. And that was BEFORE the impact of COVID-19. Tesla’s Q1 tiny profit was entirely derived from government handouts in the form of credits sold for cash. The average Tesla stock holder is either unwilling to read their income statement or believes it is irrelevant.
Why is Tesla still losing money? Lack of demand. As Tesla gets a sense that they are going to miss their delivery targets, they cut prices. By my estimates, Tesla is still losing over $4,000 per car delivered. Then at the end of the quarter, they magically pull out just the amount of credits that they need to still show a profit. This isn’t sustainable and any real company has no ability to do this. If you were wondering why people are still bearish on this company, this is why.
If Tesla wants to be respected like a real company, then they need to start acting like one. That means showing a profit before government handouts, accruing for future warranty work, explaining anomalies on their balance sheet and etc. The list of items where Tesla doesn’t act like a well-managed company goes on and on.
So why is the stock going up? Because Wall Street is betting on Musk’s ability to ignore the law and do what he needs to do to pull out one more quarter of “profit” which leads to S&P 500 inclusion.
Remember, Tesla’s whole wonder run started last year after a near death experience. 2019 started off horrifically for Tesla. Short on cash they were forced to close all of their stores. Their CFO quit. Their largest shareholder, Baillie Gifford admitted that they contemplated bailing on Tesla. It’s my theory that when faced with the implosion of his company or playing fast and loose with the rules, that Musk chose a very high-stakes gamble. That’s why his entire Accounting leadership team has left the building.
The run up in Tesla’s stock price over the past few months is actually a danger sign. It means that it’s not rooted in anything of value. What goes up in this environment always goes down just as fast. In fact, ownership of Tesla stock is worse than owning nothing. Because you actually own a share of Tesla’s losses. Some people like to throw stones at crypto currencies because they say you own…nothing. Well, Tesla is even worse. It’s like owning negative value.
A lot of people also forget the value that short sellers add. Which Tesla is losing. Shorts serve as a sort of parachute to stocks that are in free fall. As they purchase stocks to cover their short position, it serves to slow down the falling stock price. Short positions in Tesla are no longer where they used to be. So when Tesla falls, it’s going to fall hard and fast.
Even if Tesla does get included in the S&P 500 along with the commensurate bump in price it only delays the inevitable. Musk knows his company needs more capital to survive. And getting included into the S&P 500 gives him another year or two. That’s why he’s willing to do just about anything to make it happen. In the last two years alone, Tesla has been at death’s doorstep twice.
But as Tesla demonstrates that their fast growth days are over and margins closer to a regular automaker, the story eventually comes to an end. Sooner or later, when it becomes apparent that the pie-in-the-sky promises of massive profits, market share, and disruption were just a dream, the selling of Tesla stock will start.
Even if Tesla becomes mildly profitable, they still lose. Because they are valued like a company which combines Apple, Google, and Amazon all into one. It’s an impossible bar for them to achieve. This company still hasn’t figured out how to make quality cars yet.
Why is Tesla still losing money? Lack of demand. As Tesla gets a sense that they are going to miss their delivery targets, they cut prices. By my estimates, Tesla is still losing over $4,000 per car delivered. Then at the end of the quarter, they magically pull out just the amount of credits that they need to still show a profit. This isn’t sustainable and any real company has no ability to do this. If you were wondering why people are still bearish on this company, this is why.
If Tesla wants to be respected like a real company, then they need to start acting like one. That means showing a profit before government handouts, accruing for future warranty work, explaining anomalies on their balance sheet and etc. The list of items where Tesla doesn’t act like a well-managed company goes on and on.
So why is the stock going up? Because Wall Street is betting on Musk’s ability to ignore the law and do what he needs to do to pull out one more quarter of “profit” which leads to S&P 500 inclusion.
Remember, Tesla’s whole wonder run started last year after a near death experience. 2019 started off horrifically for Tesla. Short on cash they were forced to close all of their stores. Their CFO quit. Their largest shareholder, Baillie Gifford admitted that they contemplated bailing on Tesla. It’s my theory that when faced with the implosion of his company or playing fast and loose with the rules, that Musk chose a very high-stakes gamble. That’s why his entire Accounting leadership team has left the building.
The run up in Tesla’s stock price over the past few months is actually a danger sign. It means that it’s not rooted in anything of value. What goes up in this environment always goes down just as fast. In fact, ownership of Tesla stock is worse than owning nothing. Because you actually own a share of Tesla’s losses. Some people like to throw stones at crypto currencies because they say you own…nothing. Well, Tesla is even worse. It’s like owning negative value.
A lot of people also forget the value that short sellers add. Which Tesla is losing. Shorts serve as a sort of parachute to stocks that are in free fall. As they purchase stocks to cover their short position, it serves to slow down the falling stock price. Short positions in Tesla are no longer where they used to be. So when Tesla falls, it’s going to fall hard and fast.
Even if Tesla does get included in the S&P 500 along with the commensurate bump in price it only delays the inevitable. Musk knows his company needs more capital to survive. And getting included into the S&P 500 gives him another year or two. That’s why he’s willing to do just about anything to make it happen. In the last two years alone, Tesla has been at death’s doorstep twice.
But as Tesla demonstrates that their fast growth days are over and margins closer to a regular automaker, the story eventually comes to an end. Sooner or later, when it becomes apparent that the pie-in-the-sky promises of massive profits, market share, and disruption were just a dream, the selling of Tesla stock will start.
Even if Tesla becomes mildly profitable, they still lose. Because they are valued like a company which combines Apple, Google, and Amazon all into one. It’s an impossible bar for them to achieve. This company still hasn’t figured out how to make quality cars yet.
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