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Posted by James Hanshaw
Source: US Stock Research Institute (ID:meigushe)
Tesla has a strong retail investor base, who own about 37% of the stock, according to S&P Global.
Among them, many can only be described as Elon Musk admirers, who make up the bulk of Tesla’s valuation, putting it well above other automakers.
But even Musk can’t walk on water, as evidenced by Musk’s more than $15 billion in stock sales this year.
Shares of Tesla have fallen about 34% year to date. If he has to continue his distracted $44 billion acquisition of Twitter, he may have to sell more. If he had been confident prices would rise this year, he wouldn’t have sold such a large volume so early to prepare for an event that could be months away.
That said, investors need to worry that Elon Musk and other insiders have long been big sellers, and — like its flawed Autopilot — they could cause Tesla to crash.
So, I recommend selling or staying away as most of the time, only dead fish go with the flow.
01
Why is Tesla favored?
Tesla has long produced EVs, the world’s most popular electric vehicle. In the last quarter, its sales rose 42%, continuing a trend that began in 2019 and turned a profit with it.
Despite a 34% year-to-date decline, the stock has traded around 1,200% over the past 5 years. Many Musk admirers would say it’s because it’s a tech stock, but many have plunged about 70% to 80% in this year’s market crash.
As an automaker, it outperforms both other automakers and most tech stocks.
On top of that, Tesla’s sales may also be good this quarter.
While there may seem to be many reasons to be bullish on the market, Tesla is by no means without its pitfalls. In June, Elon Musk said Tesla’s new factories in Germany and Texas were “huge melting pots” that cost “billions of dollars.” Billions of dollars are needed to build the additional mega-factories needed, many existing problems remain unresolved, and new ones are still emerging.
02
Tesla internal problems
Many of the problems are of Tesla and Musk’s own making.
I mentioned that some of the people in Tesla are past their sell-by date. These include issues with California authorities, numerous lawsuits against them, and numerous recalls. More have since been added to these recalls, including the 1.1 million vehicles mentioned in the most recent SA report.
This is not all of its problems, the following things may be hidden:
1. bitcoin
Why Musk bought this is a question I can’t answer because I don’t think it has anything to do with car manufacturing. He bought $1.5 billion in Bitcoin on February 8, 2021 for $46,365.
The price I wrote was $19,334, a 58% drop. Some have sold, but Tesla still has about 25% of the original bad buy.
2. Battery
Tesla is spending billions of dollars building factories to make batteries for its cars. This seems logical, but others are doing the same, which means there will be an oversupply in the near future.
In fact, Tesla tops the list of “Others” in the World Federation of Electric Vehicle Battery Manufacturers.
3. dabble in solar
With Tesla’s money, Musk rescued a loss-making solar panel manufacturer owned by his relatives.
The industry has nothing to do with car manufacturing, is full of low-cost producers, and Tesla has no chance of becoming a global player like cars.
4. robot
Tesla just hosted its long-awaited AI Day event in Palo Alto, California. A prototype Optimus Prime humanoid robot is shown.
Analysts believe this could prove that Tesla is both an automaker and a tech company, arguing that if the production date for the first version of the Tesla Bot is considered more recent, creating a working prototype would give the company a few boosts. grade.
Musk said: “Our goal is to make a useful humanoid robot as soon as possible. There is still a lot of work to be done to perfect and prove Optimus Prime.”
He also wanted to mass-produce it so that the price would be affordable to thousands at around $20,000. I suspect most people would rather mow their lawn and spend their money on something else.
Also, analysts might argue, robots aren’t what automaker investors want, and there are already many established robot makers around the world.
Swiss giant ABB (ABB), Chinese-funded German company KUKA, American conglomerate General Electric (GE), etc. Near Tesla’s Palo Alto offices, Agility Robotics is a pioneer in the development of humanoid robots.
Tesla cars are built by robots, and more complex cars are used to perform delicate surgical procedures on the human body. Along Palo Alto in Sunnyvale, California, Intuitive Surgical (ISRG) has long been a world leader in making these surgical robots.
Since Tesla is also targeting self-driving cars, they don’t need them either. To build the vast array of robots Tesla envisions would take years and huge sums of money to build a factory.
Investors would have to be an extreme optimist to see how Optimus will generate profits for Tesla shareholders in any foreseeable time frame and possibly forever.
All of these internally generated problems have nothing to do with Tesla growing into the world’s leading automaker. These, along with Twitter and Musk’s other activities, such as SpecEx, are a distraction from Tesla’s main business.
03
External Challenges – Competition
In addition to a lot of internal contradictions, the changes in the external environment Tesla faces also bring many uncertainties.
Competitors are growing rapidly. All major automakers are investing billions of dollars in developing their own electric vehicles and retrofitting existing factories/building new ones to produce these cars. Some are still building factories to make their own batteries.
For example, competition from China is coming quickly. China has been the world’s largest auto market for some time, and is now the largest electric vehicle market.
Among them, the largest is China Automotive BYD Co., Ltd., which started out as a battery manufacturer. In the mid-1990s, Mr. Wang moved to Shenzhen, where mass immigration from rural areas provided the city’s factories with the cheap labor they needed to compete with rivals in Japan and South Korea.
For the next 20 years, BYD, in some ways, followed the well-established approach of leading East Asian companies by examining Japanese and American products and finding ways to replicate basic technologies rather than copy them directly.
Today, BYD has surpassed South Korea’s LG to become the world’s second largest producer of electric vehicle batteries, second only to CATL.
Along the way, its EV division was born in 2002 through the acquisition of Tianjin Auto, China’s sixth-largest automaker by sales at the time. Mr Wang took the gasoline engine out of the existing model and installed an electric motor.
In some ways, he was ahead of Tesla, and now by a wide margin, as Wang set out to master technologies from finished batteries all the way to lithium and nickel ore.
Also, according to a recent SA report, Toyota (TM), the world’s largest automaker, will enter into a joint venture with BYD to produce a low-cost electric vehicle for the Chinese market.
“Europe is now the main target for Chinese EV exports,” said a Merics report.
New EV businesses are heading in the direction of America’s highways, as are legacy auto giants.
Many of them are for Tesla! Volkswagen has said it aims to surpass Tesla in electric vehicle sales by 2025. General Motors has said something similar. All are targeting a market that isn’t growing as fast as Tesla’s production ambitions.
A visionary, Musk almost worked miracles to get Tesla to where it is today. But another miracle is needed in the near future if his goal of 20 million cars is to be achieved, and even if the target is aimed, Tesla could be in financial regress.
At Tesla’s last networking conference in Austin, Texas, Musk said the company “will eventually build at least 10 or 12 gigafactories.” They also take years to build, which means they will be completed by the end of 2029 – more than seven years.
In case Tesla hits that number, it will take another miracle to sell so many cars, as it may be impossible for any automaker to capture a 16.4% share of the entire world auto market, including ICE.
GlobeNewswire estimates the total car market size in 2030 to be 122.83 million vehicles in 2030, which I use to calculate the market share percentage.
If S&P Global’s estimate of 26.8 million electric vehicle sales in 2030 proves correct, that means Tesla must reach 75 percent of the electric vehicle market. By 2030, that will be nearly impossible.
In addition to electric vehicle players old and new, hydrogen-fueled vehicles are also on the road more and more. Toyota, which led the world into hybrids, is leading the way. Toyota’s Mirai, for example, looks good and starts at $49,500.
Their fuel cells were dismissed by Elon Musk as dummies’ batteries. Those “dumb” batteries use far less lithium than batteries, and growth in EV sales means lithium is becoming scarcer and more expensive, so they could make Musk look like a dummy.
04
External Challenges – Economic Environment
For the entire automotive market, external economic challenges are growing.
For example, Europe. The fundamentals are not good for any automaker right now.
The UK is once again the Stagnation Nation. Today it has quite a few problems: a housing crisis, a health care crisis, an energy crisis, a cost of living crisis, and now a currency crisis.
Not surprisingly, the Bank of England expects British households to face the biggest collapse in living standards since such records were first kept 60 years ago. The British government’s recent small budget to ease fiscal policy “will require a significant monetary response,” said the chief economist at the monetary policy custodian, the Bank of England.
That response meant raising interest rates, making things worse, and the civil war has driven the pound to historic lows in a country already in recession and heavily reliant on imports for many things.
That means Tesla’s cars — all of which are imported — have become more expensive unless Tesla absorbs the difference.
Germany is also in recession or almost in recession. It is the largest economy in Europe and the fourth largest in the world.
Cars are at the discretion of the consumer, and plunging sales in a recession have sent Tesla (and others) stock prices down with it.
The U.S. is in good shape right now, with relatively good employment, but is also moving in the opposite direction of the fiscal tightening/easy money mix.
A series of events pushed up 30-year mortgage rates by more than 7%, making buying a house and other necessities more important than buying a new car.
Concerns that people aren’t buying cars, and those that do have a growing selection of EV brands, means many investors are back on solid footing.
In this case, Tesla briefly fell below the 200-day moving average.
05
Epilogue
Musk and Tesla face many challenges.
In my opinion, his diversification into unrelated business areas is both a distraction and a misuse of Tesla shareholder funds.
Tesla has long traded at a price-to-earnings ratio well above any other automaker at a time when it was pretty much the only one and was way ahead in making electric cars.
However, as the economic environment deteriorates, the EV market can quickly become crowded.
Bad news for investors: Tesla faces a slew of challenges, many of which have built up over time and remain unresolved with more recent additions and now-increasing recessions.
So my conclusion is to stay away from the Tesla and get rid of the thin ice as soon as possible – before it finally breaks.
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