Tesla's running on empty

The cars may be stylish but the stock isn't very attractive.

By TheStreet Staff Jun 5, 2013 1:14PM

thestreet logoElectrical plug copyright Jupiterimages, Getty Images, Getty ImagesBy Robert Weinstein

 

As an active trader, I enjoy watching volatile stocks and Tesla (TSLA) tops the list lately. 


I've written about Tesla on TheStreet recently (here and here), but these articles aren't about trading. Traders watch charts to make decisions; fundamental information, including price-to-earnings ratios and profitability, play little or no role. If you're an investor with a buy-and-hold strategy, I'm talking to you because you care about profitability and return on investment.

 

The distinction between the two is notable, because Tesla's moves up or down during the few days after publication doesn't mean I'm right or wrong. Besides, I'm not in the predicting-the-future business; I'll leave that to the fortune tellers. I am in the probability-predicting business, and I don't use star alignment and palm reading for that.

 

To predict the chances of a price movement, I use historical events that share similar characteristics. As Mark Twain noted, "History doesn't repeat itself, but it does rhyme." Based on that observation, Twain could have fared well trading stocks. Technical analysis works well for those who take the time to understand it because it often reflects crowd behavior. 

There is nothing magical about lines and circles on a stock chart until you take it to the next level and use the information to gauge market sentiment in relation to other information, such as short interest and forward earnings estimates.

 

Few, if any bought Tesla stock because of its earnings report. Operationally, the company once again lost money, and that's with a massive $7,500 effective price-tag reduction, courtesy of the tax payer. It wasn't enough, and it's not likely to be enough in 2013 to raise the automaker into the land of profitability from selling its product.

 

Yes, people were buying shares like crazy after the earnings report. That's called a short squeeze, and it's not going to last for long. The short squeeze started because too many writers were tripping over themselves to report that Tesla made a profit. Unfortunately for many readers, the alleged stock gurus trumpeting Tesla's illustrious story were either too lazy to read, didn't understand what they read, or didn't care what the earnings report and future guidance stated. 

 

For many, temporary and difficult-to-replicate accounting sleight of hand is just as valuable in creating profit as is profit from the actual manufacture of products. Fortunately for them (and not so much for investors), bubbles tend to persist long after they reasonably should pop. I guess that's why we have bubbles in the first place, because reason and logic get tossed out the window and replaced with passion. 


Emotionally, Tesla is a stylish car that is stunning to look at, and based on reviews, fun to drive. Emotionally, you may pay more for a Tesla because people often use emotion to drive their purchasing decisions and subsequently justify it with (any) logic.

 

Using emotion to buy a car is acceptable, if you're comfortable with the depreciation and costs of the purchase. But if your objective is to make money by investing, leave your emotion in the garage and allocate your capital using logic and historical odds. If you still want to buy Tesla, just put your order in for $75 and let it sit.

 

By the time (and it likely will be within a few months) the stock reaches $75, the emotional attraction should diminish enough that you will want to pull that order and wait for a lower price, which it likely will reach also.

 

DISCLOSURE: Author does not hold a position in any stock mentioned.

 

 

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1Comment
Jun 6, 2013 3:29AM
avatar
Why are the absolutely key benefits of Tesla an 'emotional' issue and the accounting issue somehow a rational/objective point of view? Subsidies have always been part of profit for large companies like automakers. Tax credits are there specifically to promote this kind of tech. What are you saying, its cheating at profits? 

As it happens, the company wasn't expected to trade a high profit this time, with credits already taken into account. All the stockbrokers knew about the credit system and had factored it in to predictions about profit - and yet the profit was there, and 2 quarters before it was anticipated. As for the long term position, it looks good. Many shorts got squeezed out and the stock looks healthy and has given Tesla a fresh injection of cash which in itself is win-win for Tesla and its investors. 

Tesla running on empty? Thanks for the hiliarity!
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