December 17, 2022
Market technicians report that TSLA is oversold and has hit bottom, showing a head-and-shoulders reversal pattern or a cup-and-handle pattern, take your pick. The usual suspects on CNBC are recommending a Buy.
To all this, I say nonsense. The facts tell me that Tesla has a problematic quarter or two ahead. It’s not time to invest in Tesla yet.
2022’s fast-rising interest rates, extreme inflation, supply chain issues, oil price volatility, and geopolitical tensions have all made for a challenging year for most sectors and industries, including autos. Nothing has changed. The outlook for the next many months is dismal. Consumer spending is weakening. Corporate earnings for 4Q2022 and 1Q2023 are likely to fall.
Tesla is caught in the crosshairs. I believe the worst is yet to come.
Like bitcoin, the bloom has come off the rose for Tesla. Its market cap, recently larger than all other auto manufacturers combined, has collapsed. When central banks worldwide are tightening, if-come is no longer a consideration. Investors want evidence of company sales, earnings, and free cash flow growth today, not some years later. With Tesla, they see the opposite. They also see competition growing in leaps and bounds. In terms of the stock, they don’t see insider buying. Instead, they are shocked at one of history’s most fantastic examples of insider selling.
Tesla built its reputation on three significant factors: (1) Elon Musk’s personal commitment, (2) a world-class battery system, and (3) low-cost production and growing sales in China. All three positives are rapidly turning into negatives.
- Musk is now primarily committed to his $54 billion investment in Twitter. He has banking agreements and personal obligations that could blow up, so he must stay committed to Twitter. His Twitter critics now involve governments as well as the media. The pressures he faces are immense. He has little time for Tesla.
- The Tesla battery system faces competition from what some experts call revolutionary technology. While that may not be true, EV buyers are looking at other brands. Every major auto manufacturer is now building and planning a powerful EV line-up. Tesla’s first-mover advantage is rapidly disappearing.
- Bloomberg reported Tesla would cut production at its Shanghai plant by 20% in December, which is the first-ever voluntary cut made by the Company and is due to the prospect of quickly falling demand. The Chinese subsidy for EV purchases ends this month, so the production cut implies current demand will not hold up.
Wall Street analysts are still clinging to hope. Of course, it’s a fact they cannot admit that their firm’s clients are loaded with stock based on earlier analyst recommendations. Of the 35 following analysts, 19 still rated the stock a Buy, while 11 are at Hold and five at Sell. This week, however, both reporting analysts lowered their targets: RBC dropped the PT from $325 to $225, and Goldman Sachs went from $305 to 235, which in anybody’s books is a lot. Just in my opinion, not nearly far enough.
This has been a tough year for TSLA investors. The stock closed Friday at $150.23 after hitting an intraday low of $150.04. That takes the price back to November 2020 and is a far cry from the January 4 high of $402.67 or the all-time high of $414.50 sixty days earlier. Even just three months ago, the high was $313.80. That is a remarkable drop in market value.
If you check the records, you will see that massive volume starting in the first week of January 2020 took the share price from $29 to $293 a year later. That 10x lift based on hope, smoke, and mirrors has come down by less than -64% from its all-time high almost 14 months ago. What’s to stop the price from collapsing in the order of magnitude of the 2020 increase, say -90% to where it had been trading consistently in the $30 range?
Does the fact that Elon Musk sold 10.075 million shares this week in the $158-$169 range for proceeds of $1.6 billion not concern investors? Or maybe his November sales of 14.05 million shares in the $191 to $209 range to take in $2.86 billion is a concern? As the price falls and Musk increasingly worries about his non-Tesla-related personal obligations, how many billions will he need in January, February, and March? What price do you think he’ll get?
4Q2022 and 1Q2023 corporate earnings for S&P 500 companies are set to drop. Yet, the consensus earnings estimates for TSLA are $7.82 in FY2022 and an astounding $15.09 in FY2023. All I can say to these Wall Street analysts is, “Good luck. Hope you still have a job by the end of 2023.”
I posit a serious question to independently-minded investors: Isn’t TSLA cooked like the holiday turkey?
Six trading sessions after writing this article, ending December 26, TSLA had collapsed -27.4% from $150.23 to a close of $109.10.
I ask you another serious question: Did a single Wall Street analyst, advisor, or TV talking head give the public such clear thinking and guidance?
Yes, TSLA was cooked like the holiday turkey.
In my blogs, if I am invested, I am fully transparent. When I buy and sell, I tell the readers. I ask them to think independently about the decisions they must make. I do not make recommendations. In writing the article on Tesla, which I do not trade, a professional trader asked my opinion on a Saturday morning. I took a look and told him. Then I figured that I ought to write it up for my readers. There you have it.