With a New Deadline, Tesla’s Luck May Be Running Out

Keith Fitz-Gerald Feb 15, 2019

Opinions on Tesla Inc. (NasdaqGS:TSLA) are like bellybuttons in that everybody has one.

Proponents think the company’s stock will go to the moon. Detractors think it’ll crumble like a stale cookie.

Who’s right?

I don’t know and, frankly, don’t care.

But ask who’s going to make a pile of money?

Now I’m interested.

We’ve talked about Tesla for years.

Last March, for example, I suggested that snapping up shares would be a good thing despite overwhelmingly negative sentiment. Anybody who got on board smiled ear to ear as the stock soared nearly $100 by August.

In late 2016, I suggested the stock was primed for what could be its biggest run to date following a wild year of highs and lows Musk himself described as “production hell.” The Model X emerged with new cupholders and a “bioweapon defense mode.” Wall Street, of course, hated the panache, but investors loved it as the stock took off from around $185 to trade at $383.45 by June of the following year.

Millions of investors are betting that Tesla can “do it again” and several Wall Street firms, having badly misjudged the company before, seem ready to pile on. Canaccord Genuity, for example, just upgraded Tesla while predicting a 40% rally. FMR LLC, Fidelity funds manager, recently boosted holdings to a 5.291% stake of 9+ million shares.

I’m not so sure.

Tesla may finally be running out of gas.

Tesla’s domination of the electric automobile market is unsustainable. Right now, they control 45% of the market between the Model S and Model X, according to Forbes. However, they’re facing hungry and aggressive competition from Aston Martin, Fiat, Ford, Nissan, GM, Mercedes, Jaguar, Audi and Porsche.

Then there’s Rivian.

Rivian Automotive Inc. is a small startup that will be releasing an electric pickup truck this summer and a seven-passenger SUV. Both will reportedly get 400+ miles per charge versus just 210 – 310 miles per charge from Tesla.

Morgan Stanley thinks Tesla’s charging stations are a “competitive moat” to borrow a term coined by billionaire Warren Buffett. But that’s doubtful on anything other than a short-term basis as local, city and state governments bring chargers online – pun absolutely intended.

The other thing that Tesla has working against it is debt.

All $920 million of it… in convertible senior notes that expire March 1 at a conversion price of $359.87 a share. That’s a level the stock hasn’t seen since December 14, and one that will force a balance sheet destroying all-cash payout if it’s trading for less when the time comes.

Rivian has a comparatively clean balance sheet, unprecedented access to talent and has immediately targeted two of America’s fastest growing automotive segments – pickups and SUVs. Moreover, GM and Amazon are both rumored to be investing in the company according to reports that broke on Reuters this past Tuesday.

Porsche could be an even bigger problem for Telsa, though.

Team Stuttgart plans to release an electric sports car that is capable of more than 300 miles on a single charge yet which also meets all of Porsche’s existing standards in terms of fuel efficiency, driving dynamics, and performance while still delivering everyday practicality.

I’m particularly interested in the Panamera Turbo S E-Hybrid Sport Turismo Estate because I love the looks, the space and the performance. But that’s a story for another time.

What catches my attention is that Porsche is investing more than $7 billion to electrify more than 50% of its total product offerings by 2025 which, given its engineering expertise, is nothing to slouch at. I think it’s the real Tesla-killer if there is such a thing.

Porsche has already announced that its new Taycan will be able to achieve an 80% charge in only 15 minutes. Tesla requires at least double that to achieve the same level while Jaguar needs 45 minutes or so to bring its F-Pace to 80%.

Then there’s the non-automotive challenge “list” Tesla has to contend with:

  1. Production still isn’t anywhere close to “mass”
  2. EV credits are burning off which means additional cash flow demands and reduced margin for even the smallest miscalculations
  3. China … ahem, for obvious reasons
  4. Legal challenges including an SEC fraud investigation, a revolving door of executives, safety and leadership challenges not the least of which stem from Musk’s widely viewed interview with Joe Rogan during which he drank whiskey and smoked marijuana.

Then there’s Dane Butswinkas.

He’s a top trial lawyer with significant experience handling commercial fraud claims for more than thirty years according to thestreet.com and other sources. And, significantly, he replaced Tesla’s long-time general house counsel, Todd Maron who’s been in place since 2013.

Perhaps I’m imagining things, but this isn’t the kind of move a company would make unless it was gearing up for a fight.

So, now what?

I’d think very seriously about selling Tesla shares into any rally. It’s on the verge of becoming totally uninvestable. At a minimum, hedge your bets if you own shares using put options like the TSLA April 18, 2019 $300 Put (TSLA190418P00300000) to limit risk.

Speculation, of course, is another matter entirely.

Aggressive investors can consider buying put options like the TSLA April 18, 2019 $200 Put (TSLA190418P00200000) or selling bearish call spreads against each new rally, especially when there’s bullish news that causes Tesla’s faithful to bid prices up. As always, keep risk to razor thin levels by using Total Wealth Tactics like Position Sizing, Trailing Stops, and LowBall Orders.

The last thing you want to do is “wreck” your portfolio.

Until next time,

Keith

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