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Sorting Out What Lies Ahead for Tesla (Part 1)

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Tesla (TSLA - Free Report) is one of the most widely followed companies in the world. In fact, so much is written and said about it in the news that it can be difficult to digest it all. This is the first in a multi-part series of articles that seeks to distill all the news, separate fact from fiction and present a framework for an investor to decide whether to become involved with this unique stock. 

Unlike most of the articles in Investment Ideas, the goal is not to provide a specific recommendation about whether or not to own the stock, but rather to sort out the major issues facing the company and examine how they might affect its fortunes in the coming months.

There are hundreds of companies that produce the goods and services that underpin our daily lives.  They are well-managed, produce steady profits quarter after quarter and belong in any well diversified portfolio, but there’s nothing sexy about them.  Tesla is not one of those stocks.

Investors in Tesla are a dedicated breed, occasionally even described as a “cult.” Interestingly, this applies equally to both long investors and those shorting the stock. Rarely does a stock instill such passionate reactions on both sides. Legitimate analyst price targets range from $180 to $470 - suggesting the stock may be overvalued by over 60% or conversely, undervalued by the same amount. Pundit-style prognosticators give even wilder predictions from an Amazon (AMZN - Free Report) – type market cap (currently $680M, or over $4000/share for TSLA) all the way down to nearly worthless.


Tesla believers see the company becoming ubiquitous in modern life, manufacturing not only passenger cars, but also semi trucks, solar panels, and home battery power storage solutions. Consumer demand for its sleek and innovative products certainly appears strong, with a waiting list of 400,000 customers for the new Model 3, though the company often struggles to produce and deliver autos in numbers that match their own aggressive goals.

Shorts point to the company’s cash hungry operating model, the aforementioned production issues and competition from larger and more established automakers who have (or soon will have) higher end electric offerings of their own.  They also point to the fact that despite CEO Elon Musk’s recent claims to the contrary, Tesla will soon have to raise cash, either in the bond market, where recent downgrades by the ratings agencies Moody’s and S&P mean significantly higher interest rates for borrowing, or in the form of an equity or convertible debt issue, both of which would dilute the interests of current shareholders.

The series will focus on several key areas:
•    The Company’s financial situation, both presently and with analysis of projections for the future (this is where the TSLA bears tend to focus most, with good reason)
•    TSLA’s current product offerings and what might be offered in the future
•    The competitive landscape for current and future TSLA products and services
•    Some ground-level observations and testimonials about consumer experiences with TSLA (including some personal experiences)

Stay tuned and prepare to learn more about TSLA…

Read part 2 here




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