That’s why Tesla is down to the same share price as one year ago

That’s why Tesla is down to the same share price as one year ago

18 April 2019 from Mikael Syding

May 24, 2018, ie just under a year ago, Tesla's share price stood at $ 280. It does now too. In the past year, Tesla has maximized the production of its volume model "Model 3" and has presented its upcoming model "Y" without getting anywhere

The buyout from the stock exchange was fake news
During the past year, Tesla and its founders have been involved in controversy almost every
week. The worst was when Elon Musk tweeted that he was considering taking the company
private at the price of $ 420 and that "the financing was secured"

None of that turned out to be true, so the price quickly dropped back to about $ 250 from an
intraday peak of $ 387. During the second half of the year, Musk still managed to talk up the
price to $ 380 again, with public comments on extremely high production targets and investor
hopes of a strong, even profitable, last quarter.

Share price magnet
Perhaps the convertible bond worked as a "magnet" and contributed to a higher share price,
because of the possibility that Musk would come up with some positive news that would allow
the loan to be converted into shares instead of being paid with nearly one billion dollars in cash.

Halved sales of old models
The spring of 2019 has been marked by a considerable disappointment regarding Tesla's
delivery statistics, where, for example, the old models S and X in Q1 2019 lost about half their
sales volume compared with the quarter before and also compared with the corresponding
quarter last year.

Erratic behavior
The sales of Model 3 were also clearly below expectations. The situation doesn't get any better
from one of Musk's more desperate play than the other. This applies in particular to completely
unreasonable production forecasts, which are up to twice as high as the company even has
permission to paint a number of cars, but also weekly changes to these forecasts and equally
frequent price adjustments.

FSD = Full Self Deception

On top of all this, Musk tries to argue that the company will soon raise the price of both cars and
supplements for self-driving function - something that other informed analysts (Templeton) do
not believe that Tesla is close to achieving the next five years. In addition we have not even
talked about old broken promises of Powerwall, trucks (Semi), solar tiles, or that the partner in
batteries, Panasonic, has halted its investments in the company's common facilities. On all
observable parameters, Tesla's growth period seems to be over. Furthermore, Musk, who said a
month ago that Tesla will never again make any quarterly loss, has already acknowledged that
Q1 will probably not show a profit.

To sum up: Tesla's nearly ten-year-old premium models have suddenly halved their sales. The
models that have been the company's main gross profit generators now face gradually
increasing competition from Audi, Jaguar, BMW, Volvo and others, while the subsidies are
waning*

* with reservation for a new subsidy proposal going through

This places increasing demands on production volumes and margins for the company's third car
model, Model 3. However, it has already shown falling sequential sales, despite launching in
new markets. This is probably partly due to production bottlenecks, but to a large extent also to
reduced subsidies in Norway and the Netherlands, as well as anecdotal reports of poor quality.
The latter is not particularly surprising considering the production is partly done in a tent that is
open at both ends, and that more cars are pushed through the paint shop than it is classified for.

"A Tesla rises in value because we raise prices"
All of the company's three car models' sales thus fall. The company's most important
cooperation partner stops investments in the companies' battery factories. The flight of senior
executives has continued. Elon Musk himself shows an increasingly irrational behavior with
contradictory price changes, forecast changes, unreasonable promises of new car models, new
factories, new functionalities (Full Self Driving and automatic taxi operations), and not least the
statement that a Tesla should be seen as an appreciating asset not a depreciating asset.

During the year since the last guest blog about Tesla, the ramping of the production of Model 3,
along with promises of new models and products, has just been balanced by broken promises (such as the $ 35,000 price level for an M3) and Musk's remarkable behavior (Also think of the
marijuana blossom in a podcast or the attack on the cave diver hero in Thailand). At the time of
writing, the price is USD 273, a few percent lower than a year ago.

There are much better investments than in Tesla stock
The question is how Tesla will find new hats to pull out new rabbits, to conjure up the same
development the next twelve months. With twelve billion dollars in net debt and several more
billions of dollars in hidden debts (consider, for example, the billion for a place in line for a Model
3 for $ 35,000) and investment needs for the production of new or upgraded vehicle models, butno profits in sight, the only thing that keeps the share price seems to be an unwarranted respect and fear for Elon Musk.

These car manufacturers are growing and making a profit, as opposed to Tesla
Despite weak car statistics in many markets, it is still much easier to conceive of an investment
in eg. BMW, where profit multiples and the dividend yield only require the company to survive in
the current state to get the money back over a business cycle and to tackle the emissions scandal. Volkswagen looks just as tempting, and to a certain extent also Daimler (although the high net debt makes the stock a little less tempting). In all three cases, the investor gets serious car manufacturers who know how to build good quality vehicles, which ensures that the companies remain, retain their customers and continue to deliver stable profits and dividends. Even Volvo can be added to the list of vehicle investments that look far more appetizing, than a fallen angel like Tesla who has gone ex-growth before it even delivers some profits.

Yes, of course, there may be a recession, but Volkswagen, BMW and Volvo have already taken
much more height for it than the rest of the stock market. And Tesla cannot even be compared
in this context, due to its high debt, negative sales development and remarkable management.

Drive carefully.

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

22/08/2019 09:12:14

 

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