Tesla’s Headed for a Crash

Steve Williams

Site Founder, Site Owner, Administrator
By Daniel Gross | The Daily Beast

Tesla Motors is back in the news again.
In the past year, the company has been on a continuous roll. In August, it opened an assembly plant in the Netherlands, and it now as has a functional cross-country supercharger network in the U.S. In the fourth quarter, it sold about 6,900 cars, more than expected. It ended 2013 with 22,477 cars sold, worth $2.5 billion, and a projection that it would “deliver over 35,000 Model S vehicles in 2014, representing a 55+% increase over 2013.”

As the chart below shows, the company’s stock has soared more than seven-fold, from about $35 in late February 2013 to about $250 this week, giving it a market capitalization of $31.1 billion, compared with $58 billion for General Motors and about $60 billion for Ford.

This week, investors were, um, charged up, by two simultaneous bold strokes. On Monday, February 26 Tesla announced it would capitalize on its momentum by selling $1.6 billion in convertible notes (a sort of debt/stock hybrid). Even better, it would use the funds to construct a futuristic $5 billion battery plant. The Gigafactory would be built somewhere in the southwestern U.S., and could employ up to 6,500 people. Taking a page from Henry Ford’s book, Tesla founder Elon Musk decided he can cut costs and gain greater control through vertical integration. Tesla has said that its ability to produce cars has been constrained by a lack of batteries from suppliers. By building its own power sources – and by building them in huge volumes – Tesla can bring the price of these vital components down sharply. What’s more, as an optimistic Morgan Stanley analyst noted, the batteries produced in the factory could have applications in related fields like energy storage and utilities.

The next day, Tesla’s stock shot up another 31 points, or 14 percent.
I’m far from a Tesla hater. I’ve championed the company as an archetype of American-style innovation, self-belief, and swagger. Founder Elon Musk has been brilliant not just in devising a new product, but in negotiating complex systems to maximum advantage – taking U.S. Energy Department loans (and then loudly paying them back years ahead of schedule), reaping significant revenues by selling zero-emission production certificates to other carmakers, and funding production by taking big deposits from customers well in advance of delivery. Tesla’s success has forced other carmakers to up their electrification game in ways that will benefit consumers and the environment.

But Tesla is getting bubbly. And we could be entering dangerous territory.
Bubbles – be they in single stocks on in entire sectors – have a predictable, repeating pattern. (I actually wrote a book about this several years ago.) Bubbles don’t get dangerous when founders and entrepreneurs get very optimistic. They get dangerous when Wall Street analysts get extremely enthusiastic about a phenomenon – after there has already been a huge run-up.

It’s one of the great ironies of modern finance that the highly paid professionals tasked with following financial trends often seem to be the last to know. The release of Federal Reserve minutes from the 2008 crisis period earlier this week reveals the economists who were supposed to spend all day figuring out the state of the economy had no idea the economy was in recession and a crisis was about to explode, even as many (cough, cough) were loudly warning that a recession had already started. Ratings agencies like Standard & Poor’s tend to downgrade credit ratings of entities like Puerto Rico -- long after the bond prices fell.
And big Wall Street firms tend to slap very optimistic buy ratings on stocks only after they’ve enjoyed an immense run-up.

That’s what is most troubling. This week, Morgan Stanley analyst Adam Jonas issued a very bullish report about Tesla. Previously, Jonas had a price target of $153 for the stock (a barrier it blew through in last August.) Now he was suggesting the stock, which has risen 600 percent in a year, could rise to $320.
The report was more than just an examination of Tesla’s balance sheet. Rather, it was a philosophical meditation on progress and the future. "Tesla’s quest to disrupt a trillion $ car industry offers an adjacent opportunity to disrupt a trillion $ electric utility industry," Jonas wrote. (h/t Business Insider) "If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again." As for its core car business, the sky was the limit – production could rise to 370,000 cars annually by 2020, and to 1.1 million in 2028. What’s more, Tesla could help usher in a new golden age in which every car drives itself. By 2026, a chart he included noted, we could have “100% autonomous penetration, utopian society.”

Now, think about all the rules of math (and human nature) that would have to be violated to reach these goals. To get to 370,000 cars by 2020, Tesla would have to enjoy a 50 percent compounded annual growth for seven straight years. And in 12 years, we’d have a system in which all cars drive themselves and we’ll live in a utopian society. Keep in mind, the U.S. can barely keep its government open, fix a pothole, or move a train 45 miles in an hour in this country.
But this is the sort of mentality that comes to the fore in a bubble. To justify the current high price, analysts have to project really powerful, uninterrupted growth endlessly into the future. To seize attention amid a string of positive results, you have to issue a wildly optimistic forecast. If you’ve been behind the curve, as analysts have generally been about Tesla, you strain to get ahead of the curve. And when a company has proven itself to be capable for several years, you start to forget that others – like car companies, utilities, governments, start-ups – may not just sit back and let Tesla expand its market share forever.

Some wags have pointed out that there may have been more practical considerations underlying the Morgan Stanley analyst’s idealistic projections. Morgan Stanley was named one of the underwriters of Tesla’s convertible bond offering, meaning it will share in fees that could amount to $100 million or more. Of course, Morgan Stanley would likely have played a role in the offering in any event. But it never hurts an investment bank’s cause when one of its analysts is cheerleading loudly for a potential client.
The pop culture enthusiasm, the Wall Street love after a sharp run-up, the bold projections, the ever-larger sums of money raised and spent, and the messianic aura – these are the sorts of phenomena one sees in a bubble. Tesla may well hit all these fantastic projections. In ten years time, we may all be driving Tesla sedans, using Tesla battery-packs to power our homes, and buying Elon Musk action figures for our kids. It’s possible.

But dreams and visions have a way of getting impaled on the sharp lance of economic realities. Recessions and financial crises happen. Competitors rise up. There are plenty of ways in which Tesla could blow a tire. And when that happens, look out below.
 

DaveyF

Well-Known Member
Jul 31, 2010
6,129
181
458
La Jolla, Calif USA
Interesting article, Steve. Around my neck of the woods..and I'm sure in yours also, the Tesla is a popular vehicle. BUT so is the Mercedes and the BMW and the Range Rover, etc. I do think Elon Musk is a visionary...to a point; however, the Wall Street gurus are IMHO anything BUT. Like the author Daniel Gross points out, there are too many questions that would need to be answered before all the "puffing" will likely occur. Five years from now, we shall see how many Tesla's there are on the road...and more importantly what the demand for one is both a) new and b) used. In the meantime, it will be an interesting story. BUT until that story has played out a lot more, I for one, am not going there.:)
 

Steve Williams

Site Founder, Site Owner, Administrator
Interesting article, Steve. Around my neck of the woods..and I'm sure in yours also, the Tesla is a popular vehicle. BUT so is the Mercedes and the BMW and the Range Rover, etc. I do think Elon Musk is a visionary...to a point; however, the Wall Street gurus are IMHO anything BUT. Like the author Daniel Gross points out, there are too many questions that would need to be answered before all the "puffing" will likely occur. Five years from now, we shall see how many Tesla's there are on the road...and more importantly what the demand for one is both a) new and b) used. In the meantime, it will be an interesting story. BUT until that story has played out a lot more, I for one, am not going there.:)

when I am at the club in Coto De Caza there are usually 6-8 parked up front at any one time
 

astrotoy

VIP/Donor
May 24, 2010
1,547
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:D

However, I suspect there aren't too many parked in the Watts area of LA or in Detroit, for example. :rolleyes:

Probably true of Lamm amps and Magico speakers, too.

Most of the Wall Street gurus have been doing big shorts on Tesla since a year ago, when the stock was around 35-40. My Tesla just celebrated its first birthday, and I wish I had bought the stock at that time. Back in November (3+ months ago) the stock fell from 180 to 140 in a few days, after all the commotion about the fires. Since I knew that was a bunch of nonsense, I decided to take the plunge and put in a buy order at 130 with the cash in my Roth IRA. There will be some bumps along the way, but most analysts have been predicting Tesla's demise for a long time. There are a lot of visionaries out there, but few have the track record of Elon Musk: Paypal, Space X, Solar City, and Tesla. He combines the vision with execution.

I'm a little old lady investor (Vanguard Index Funds) and I won't be buying TSLA at 250 a share, being long at 130 is more than I thought possible in November. I certainly wouldn't short at 250.

Larry

PS - The car is really great and Musk knows better than the old car makers how to treat his customers.
 

DaveyF

Well-Known Member
Jul 31, 2010
6,129
181
458
La Jolla, Calif USA
Probably true of Lamm amps and Magico speakers, too.

Most of the Wall Street gurus have been doing big shorts on Tesla since a year ago, when the stock was around 35-40. My Tesla just celebrated its first birthday, and I wish I had bought the stock at that time. Back in November (3+ months ago) the stock fell from 180 to 140 in a few days, after all the commotion about the fires. Since I knew that was a bunch of nonsense, I decided to take the plunge and put in a buy order at 130 with the cash in my Roth IRA. There will be some bumps along the way, but most analysts have been predicting Tesla's demise for a long time. There are a lot of visionaries out there, but few have the track record of Elon Musk: Paypal, Space X, Solar City, and Tesla. He combines the vision with execution.

I'm a little old lady investor (Vanguard Index Funds) and I won't be buying TSLA at 250 a share, being long at 130 is more than I thought possible in November. I certainly wouldn't short at 250.

Larry

PS - The car is really great and Musk knows better than the old car makers how to treat his customers.

Larry, like I said above, let's talk five years from now. Time will tell.
 

mep

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Apr 20, 2010
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Elon Musk has a proven track record of doing whatever he puts his mind to. I wouldn't sell him short. IMO, he is a visionary on a much larger scale than Steve Jobs who people seem to revere for his visionary abilities.
 

DaveyF

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Jul 31, 2010
6,129
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La Jolla, Calif USA
I do agree that Elon Musk is a visionary. I'm not selling him short, BUT the business plan and wall street's expectations are like Daniel Gross stated.
 

mep

Member Sponsor & WBF Founding Member
Apr 20, 2010
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I do agree that Elon Musk is a visionary. I'm not selling him short, BUT the business plan and wall street's expectations are like Daniel Gross stated.

I found this comment of yours to be nonsensical:

However, I suspect there aren't too many parked in the Watts area of LA or in Detroit, for example.

Mercedes, BMW, Audi, Lexus, etc. aren't targeting selling their cars to poor people either. Their target customers are those with high incomes. I doubt the business plan for Tesla relies on selling their cars to the fiscally disadvantaged.
 

DaveyF

Well-Known Member
Jul 31, 2010
6,129
181
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La Jolla, Calif USA
I found this comment of yours to be nonsensical:

Re-read my comment.



Mercedes, BMW, Audi, Lexus, etc. aren't targeting selling their cars to poor people either. Their target customers are those with high incomes. I doubt the business plan for Tesla relies on selling their cars to the fiscally disadvantaged.

Yes, but Elon's seems to want to adopt a Henry Ford model...and Henry didn't sell to just those with high incomes. In order to become the "Ford" or "Chev" of the american automotive world....and thereby SIGNIFICANTLY increase his market, Elon will have to branch out.
 

BlueFox

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Nov 8, 2013
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I believe I read where Tesla is aiming for a $35K model in the next year or so. Making his own batteries is part of the plan to bring down the price.
 

Phelonious Ponk

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Jun 30, 2010
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Wall street analysts and writers seem to have the ability to examine the established patterns of the past and apply them to the future. They don't do it particularly well, and usually with a bit of paranioa on the side. What they seem to have very little skill at is the understanding and analysis of innovation. Maybe that's not their particular shortcoming. Maybe the nature of the beast is that innovation is too unpredictable, to personal, to far outside of established patterns to be analyzed. This article could be right, but that would be an accident. So far it seems that most of us would be better off buying Tesla stock than Teslas. If they get a great $35k car out there with the Tesla cache and the infrastructure to meet demand, we'll all look back someday and wish we had been buying it right now. If not...?

Does anyone think this guy, or any Wall Street writer knows?

Tim
 

zztop7

Member Sponsor
Dec 12, 2012
750
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Wall street analysts and writers seem to have the ability to examine the established patterns of the past and apply them to the future. They don't do it particularly well, and usually with a bit of paranioa on the side. What they seem to have very little skill at is the understanding and analysis of innovation. Maybe that's not their particular shortcoming. Maybe the nature of the beast is that innovation is too unpredictable, to personal, to far outside of established patterns to be analyzed. This article could be right, but that would be an accident. So far it seems that most of us would be better off buying Tesla stock than Teslas. If they get a great $35k car out there with the Tesla cache and the infrastructure to meet demand, we'll all look back someday and wish we had been buying it right now. If not...?
Does anyone think this guy, or any Wall Street writer knows?

Tim


Las Vegas is a 100 times more honest than Wall Street.
Wall Street caters to & protects its' 100 million $$$ & billion $$$ clients.
As Wall Street [top guys & their pawns] are telling you to "BUY, BUY, BUY"; the $$$ clients worldwide are dumping that issue into your pockets [& usually your pockets will THEN have holes in them].

And this Tesla battery plant will empty other people's pockets, but they sure can sweet talk it.

zz.
 

MylesBAstor

Well-Known Member
Apr 20, 2010
11,236
81
1,725
New York City
:D

However, I suspect there aren't too many parked in the Watts area of LA or in Detroit, for example. :rolleyes:

What is that supposed to mean?
 

DaveyF

Well-Known Member
Jul 31, 2010
6,129
181
458
La Jolla, Calif USA
What is that supposed to mean?

I'm surprised I have to spell that out for you, Myles:(. It means that the Tesla is a luxury product currently available only to a select well-heeled few and not to the masses or the poor. That's it plain and simple. My point is that since Elon wants to appeal to the masses and therefore copy the Henry Ford model, he is going to have to change his pricing structure in order to do that. IMO.
BTW, I presume that you thought I meant something else by that remark, I can assure you that I did NOT.:p
 

Gordon B

Well-Known Member
Apr 1, 2012
4
0
906
Probably true of Lamm amps and Magico speakers, too.

Most of the Wall Street gurus have been doing big shorts on Tesla since a year ago, when the stock was around 35-40. My Tesla just celebrated its first birthday, and I wish I had bought the stock at that time. Back in November (3+ months ago) the stock fell from 180 to 140 in a few days, after all the commotion about the fires. Since I knew that was a bunch of nonsense, I decided to take the plunge and put in a buy order at 130 with the cash in my Roth IRA. There will be some bumps along the way, but most analysts have been predicting Tesla's demise for a long time. There are a lot of visionaries out there, but few have the track record of Elon Musk: Paypal, Space X, Solar City, and Tesla. He combines the vision with execution.

I'm a little old lady investor (Vanguard Index Funds) and I won't be buying TSLA at 250 a share, being long at 130 is more than I thought possible in November. I certainly wouldn't short at 250.

Larry

PS - The car is really great and Musk knows better than the old car makers how to treat his customers.

Hi All,
I've been lurking here for a year + but Larry's post has inspired me to write here.
I put down my deposit for the Model S P85+ back in June for December delivery coincident with my wife and I moving down to Naples, FL from Baltimore, MD for our first season of snow-birding.

Like Larry, I thought the bad press and selloff from the fires was BS so even though I do not own individual stocks for my personal account so I bought TSLA @ 140 on its way down to 120. I'm holding it at least a year, when it becomes a long term capital gain.

I couldn't rave more about the car. Great handling, unbelievable acceleration and de-acceleration and super quiet. I'm also able to play FLAC files in the car. The only thing I didn't like was the audio system but I contacted a company that specialized in upgrading car audio and had done over 80 Teslas. Now I'm very happy with the audio.

I'm not sure what my bigger regret will be upon returning to Baltimore in two months; leaving behind my Model S or my Q7's. We bought a house in FL and downsized to a condo in MD and will not be able to charge an electric vehicle in the condo garage.

Gordon
 

Gordon B

Well-Known Member
Apr 1, 2012
4
0
906
I'm surprised I have to spell that out for you, Myles:(. It means that the Tesla is a luxury product currently available only to a select well-heeled few and not to the masses or the poor. That's it plain and simple. My point is that since Elon wants to appeal to the masses and therefore copy the Henry Ford model, he is going to have to change his pricing structure in order to do that. IMO.
BTW, I presume that you thought I meant something else by that remark, I can assure you that I did NOT.:p

http://ecomento.com/2014/03/04/electric-tesla-model-e-half-price-20-percent-smaller-70000-model-s/
 

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