For Tesla (NASDAQ:TSLA) bulls, 2019 has begun as a terrible, horrible, no good and very bad year. Tesla stock started January at $306 and opened for trade Mar. 11 at about $284. The market cap of the electric car maker — $49 billion — has once again fallen behind that of General Motors (NYSE:GM), which is up almost 13% so far in 2019 and now has a market cap of over $53 billion.
TSLA’s fourth-quarter revenues of $7.2 billion barely topped the third quarter’s $6.8 billion. Its wild growth rate, which saw revenues nearly doubling year-over-year in 2018, looks set to fall. Investors are tiring of CEO Elon Musk’s Twitter antics, with some even calling for his removal.
Tesla Without the Hype
Tesla has always run on a steady diet of hype. Most of it comes from founder-CEO Musk, who plays by his own rules and delights in his celebrity. But the act is getting old.
That’s because the industry has gotten Tesla’s message. Electrics and self-driving are the future. Nearly every major car company around the world has plans to follow the path Musk has blazed.
But if you try to evaluate Tesla in conventional ways, it just doesn’t work. The company still sells for 2.5 times sales, while GM sells for less than one-third its sales. The balance sheet is a mess, with $10 billion in current liabilities and $8.4 billion in long-term debt, against assets of $29.7 billion.
The secret of Tesla’s success is Other People’s Money (OPM). It gets a lot of its funding from pre-paid deposits, pre-paid warranties and advances on software. Tesla sells cars before it makes them, the reverse of what other car makers do. But it is now catching up on those back orders.
As Tesla fulfills its early promise of mass production, it faces new problems with sustainability. Tesla does not yet know where it will make its Model Y SUV. Its Nevada battery plant is still not delivering its target of 7,000 batteries per week. Musk himself seems more interested in his privately-held SpaceX rocket company. He’s also threatening his own business by publicly smoking pot while having a security clearance.
The Tesla Hype Train
Musk does still have supporters, like fund manager Cathie Wood.
She has a five-year price target of $4,000 on the stock, with a doubling to $700 acting as her “bear case.” She believes Tesla can scale production to 26 million vehicles in 2023, from 1.3 million in 2018, turning many of its new cars into self-driving taxis with gross margins as high as 80%.
The Bottom Line on Tesla Stock
Tesla has done what it set out to do. It has transformed the car market with well-designed electric cars and self-driving technology.
But its rivals are on to the trick. Taking the Tesla hype show to China will not, by itself, change this. Tesla stock still carries an “Elon Musk premium,” but as the air goes out of that balloon, the shares are likely to fall and, worse, become less volatile.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write to him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he did not have a position in any of the aforementioned securities.