Tesla Motors (TSLA (Nasdaq)): Late night comedian and talk show host Stephen Colbert is having a romance with his Tesla Model S. During a recent show, he went on and on about his car and all the implications associated with the promise and premise of Tesla – from autonomous cars to the potential for the geniuses of Silicon Valley – Tesla, Google, Apple — to shake up the auto industry.
“I love my Tesla – it’s so fast; it’s all electric,” he said.
Colbert is part of a committed, rabidly enthusiastic Tesla fan base. Yet even well-versed journalists like my colleague Dan Neil, a Pulitzer Prize-winning columnist for The Wall Street Journal, hold Tesla in extremely high regard. As he recently wrote, “The Big Three German auto makers only wish they could catch the tail of Mr. Musk’s rocket.” Musk being Elon Musk, Tesla CEO.
So is Tesla a star or a dog? With due respect for the Tesla love machine: woof, woof. I admire the Model S as a driving machine and something of a technological triumph, but as far as Tesla the company goes, I side with the investment blogosphere filled with headlines such as “Tesla’s bubble is bursting,” “Model X may solve more problems than it solves,” and “Tesla goals are just hot air.”
Until Tesla produces sales and profit numbers that prove otherwise, I consider this Silicon Valley start-up a stock play masquerading as an innovative, 21st century car/technology company. The high-flying stock is being sustained on good feelings, staggeringly optimistic analysts’ reports and outrageous promises from a CEO who has leveraged his personal his stake to qualify for a multi-million dollar credit line earmarked mostly for personal reasons.
As someone planted firmly in the middle class who has covered the auto industry for 30 years, I cannot understand the Tesla love. Tesla as both an investment and a seller of electric cars makes sense for a certain slice of very wealthy people, such as Colbert, but not me. Tesla makes cars for people who can afford to buy a $100,000 battery car and house it in a garage filled with other more traditional vehicles that do what battery cars cannot – get a quick fill-up at fuel stations everywhere.
These also are people who can afford to make risky investments. Unlike the middle class, they have mad money to throw at risky ventures. If you have a stake in Tesla, you are gambling on a fledgling company that may deliver out-sized returns someday – or go bust, or do something in between. We just can’t know.
What we can know is the facts. In Tesla’s third-quarter report, we learned that Tesla’s loss per car sold hit $19,810 (all figures in U.S. dollars). That number reflects the total Q3 loss of $229,858,000 divided by the 11,603 cars sold. That’s the math.
We also learned that if Tesla is to hit its 2015 sales target of 50,000-52,000 vehicles, fourth-quarter deliveries will need to explode to an expected 17,000 to 19,000.
At the beginning of the year, Tesla stated a 2015 sales goal of 55,000 vehicles. That was downgraded in a mid-year forecast. Even as Tesla has consistently missed its targets, we are expected to believe that Q4 sales will jump somewhere between 45 and 65 per cent over Q3. Really?
In a conference call with investment analysts, Musk also hedged when asked to confirm delivery numbers for the much-anticipated Model X crossover. The holidays might mess up Tesla’s plans, he said.
“So – and at the end of the year, there can often be logistical challenges, because it’s like Christmas and New Year’s,” he said. “And all of the logistics channels are jammed and people are not home.
“And there can also be adverse weather events, like blizzards and things. So that’s what – it’s sort of logistical challenges at the end of quarter and when exactly does the – and what exactly does the Model X production ramp exponential look like. That’s what introduces the uncertainty.”
Tesla and its shareholders, then, may get a lump of coal for Christmas thanks to bad weather and vacations. Apparently Tesla is the only car company facing enormous hurdles during the holidays. Of course not.
The numbers and CEO Musk’s comments suggest that Tesla’s hopeful investors and dreamy cheerleaders have something to worry about — and it starts with the CEO. Elon Musk looks like the Elmer Gantry of the car business, what with his evangelical zeal, failed promises and willingness to treat Tesla like a personal ATM machine.
Musk and his company say they will deliver this and that, they tout future returns, and new model launches and such, yet the Q3 results yet again show a failure to deliver and a willingness to keep making very bold predictions in spite of failed past performance.
Here’s the Tesla takeaway to date: the Model X is generally considered a nice SVU, but over-priced. Tesla will not hit its sales targets this year, barring a miracle. And the cash burn will continue.
Most troubling of all, perhaps, is the fact Consumer Reports, has pulled its recommendation on the Model S. Turns out the $100,000 luxury electric Model S is stumbling as a used car. CR: “As the older vehicles are getting up on miles, we are seeing some where the electric motor needs to be replaced and the onboard charging system won’t charge the battery.”
And newer vehicles? CR is “seeing problems such as the sunroof not operating properly. Door handles continue to be an issue.”
For me, Tesla remains in the dog house.
Oh, Heavens. These Two Are Stars?
Yes, General Motors (GM-N) and Ford (F-N): These old-world auto giants from the failed city of Detroit have become money-making machines in the post-recession era. Imagine that. Miracles do happen.
Here’s an important question: Why wait for Tesla to live up to the hype when GM and Ford are spinning out returns that seemed impossible a decade ago. Growth remains an issue. But if you’re looking for 4.0 per cent yield in a market where stable, reliable, well-capitalized and solidly global companies are tough to find, look to Detroit.
Consider the facts, starting with GM. At the end of the third quarter, adjusted earnings per share were $3.63 (US). Thus, profit has about doubled year-on-year.
Said GM CEO Mary Barra. “GM is a vastly different company today than just five years ago.” GM is shifting its business plan to become a leader in “personal mobility” and everyone at the General knows the importance now of creating “shareholder value for years to come,” say Barra.
As for Ford, the profits keep coming and the dividend keeps growing. Net income rose to $1.9 billion (US) in the third quarter from $1.1 billion (US) a year ago. Ford missed its third quarter estimates, yet of the 21 analysts who cover Ford, surveyed by Reuters Estimates, the consensus rating is a buy.
Both Detroit automakers did okay in the latest CR reliability study, with GM’s Buick brand ranked No. 7 overall. GM and Ford have extremely ambitious “green” plans in their product pipelines, too.
Sure, SUVs and pickups represent the bulk of the profits for both, but at both companies the long-term foundation is in place to switch to hybrids, plug-in hybrids, EVs (electric vehicles) and even hydrogen fuel cells if the market ever demands them. If “green” demand explodes, GM and Ford are ready.
For now, GM and Ford are concentrating on putting lightweight materials (Ford’s aluminum F-150 pickup) and technologies such as cylinder deactivation (GMC Sierra and Chevrolet Silverado pickups) in place to save fuel in conventional rigs. More advanced technologies are in the product pipeline.
GM and Ford, then, represent investments with a track record of delivering solid returns. Past performance and future projections suggest neither is a gamble. There is an argument to be made, in fact, that for both, that a twinkly sky is the limit.