- Source: Tesla

Bear or Bull: Tesla (TSLA)

I woke up this morning, prepared to have the Tesla fanboys come after me when I wrote this article. So here goes nothing.

33w ago

I've gotta say, watching Tesla (TSLA) stock value take a nose-dive in the past weeks has been painful. Not for myself, I'm not invested in Tesla. But for a good whack of the friends who have recently been bullish about their new Tesla stock purchase. The problem with Tesla stock valuations is that that they aren't logical. Allow me to digress.

I want to start by pointing out that you need to take anything I write here with caution. Tesla stock value when from under $100USD last year to over $500USD in the post COVID19 crash and back to under $400USD in the latest tech selloff. The valuations are still volatile as well. Last week Tesla jumped between 5-10% positive and negative every single day. Watching it was honestly exhausting.

Tesla at this second is most definitely a bear stock. It's outrun all of its tech rivals since the March crash and there was no genuine reason for it to do so.

Tesla at this second is most definitely a bear stock. It's outrun all of its tech rivals (and most analysts today Tesla is a tech stock and not an automotive stock) since the March crash and there was no genuine reason for it to do so. In fact, all of the gained value in Tesla stock over the past 12 months has been future value, and that makes me really concerned.

Now don't get me wrong, Tesla is a fantastic company. Elon Musk is a visionary. The Tesla vehicles are fantastic as well, I've driven everything on range aside from the Tesla Model Y, Roadster and Cybertruck and I absolutely love the cars. I think they're priced correctly and my hope is that the Model Y will be the perfect competitor to the upcoming BMW iX3 (if the Model Y ever makes it properly on the road in volume).

That aside I think the work Tesla is doing in consumer renewable energy is next level as well. I mean who makes the world's biggest battery as a PR stunt? Musk basically fixed the South Australian Government's power grid in a couple of months flat and that alone was stunning. But the consumer product, the Powerwall is superb. But that is equally where Tesla's problems start.

If you read my weekend wrap on Saturday, you'll know that automotive is not in a good place right now. Research and development spending (because we're in a transitional period) is through the roof and car sales are not looking healthy. No doubt as with any market this is just a multiple-year dip and it'll recover before long, but none the less the whole economic effect of COVID19 so far has only exacerbated the problem. Tesla is still in relative positive growth but the baseline for their vehicles deliveries was already very low and compared to its main competitors near non-existent.

So there's the first point, automotive is in a bad place and Tesla is still growing. That's bad because it means that Tesla's competitors (having been through this before) are not looking at making big waves in the coming year. They're looking at consolidating gains and taking advantage of the Post-COVID19 automotive boom (of which I can almost guarantee there will be one).

The barriers to entry for Tesla's market are rising at an alarming rate. Competition seems to be growing at an increasing level on almost a daily basis. Not only is Tesla dealing with the indoctrinated automotive brands like Jaguar, BMW, Audi and Mercedes but they're now having to deal with startups alike to them who are purportedly doing it better and cheaper. Chinese revivals such as MG who offer a well-specified electric vehicle at the fraction of a price of the Tesla are only the tip of the iceberg. Rivian have launched rivals in two Tesla classes so far and last week Lucid revealed their first competitor as well. Then you have Volvo's Polestar who have come into the mass market with the Polestar 2 undercutting the Model Y and Model X prices significantly.

All the meanwhile, the feather in Tesla's cap is going ignored, the Powerwall.

All the meanwhile, the feather in Tesla's cap is going ignored, the Powerwall. We have to remember that in its original form Tesla was an energy company. They were providing infrastructure to the energy sector and continue to do so. That's where their research and development was and it's also where they derived their fantastic EV tech from. So why not make a massive push into the one consumer sector which is cheaper, more profitable, Government supported worldwide and a future necessity for all households? I think we all forget that about Tesla and that fact alone sets off alarm bells.

Tesla is also heavily reliant over the next 12 months on American politics, and analysts believe that's part of the reason its value took such a massive dive two weeks ago in the selloff. American politics are similarly volatile right now, with two equally big extremes vying for the American presidency and neither looking to bring strong leadership to the position. That means that even if renewables and climate change policy was a big talking point during the current election there's an unlikelihood anything will be done about it in the next 4 years. It leaves the ball in the energy and renewables sector court and that's a costly exercise.

I've given you the reasons to feel bearish about Tesla's market outlook over the coming years, let's now talk some numbers, what the ideal buy-in is and what you need to look for when the time comes that Tesla becomes a bull again.

So over the past 12 months, almost 356,000 shares have been sold by Tesla insiders compared to the 14,000 that have been bought. That's almost universally never a good thing. The majority of those shares have been traded by the executive team at Tesla (just note that this does not include shares that Musk himself has traded as he no longer holds an employed position at Tesla). 124,500 of these shares have been sold in the past 3 months and it makes up almost a third of the total sell trades that have occured over the 12 month period. That should tell you that the executive team were taking profits on the shares and are selling down to the level that they believe will bring their holdings into bull territory.

Equally, those insider trades will be the calling card for when these stocks start moving towards bull stocks.

Equally, those insider trades will be the calling card for when these stocks start moving towards bull stocks. When insiders begin buying shares up again you'll know that Tesla is ready to make another big push either in volume or product range worldwide and the valuations have bottomed out.

Tesla is also trading up at 345% year to date so far. Analysts still have the upside predicted as higher than the downside with a comparison of a 114% upside for the most bullish analysts and a 94% downside for the bearish ones. The median price across those valuations is about $300 which would indicate that the stock still has some falling to do. However, the chance of upside VS downside just shows you how much volatility there is in the Tesla share price right now and the risk is just far too high.

Even so the majority of analysts rate Tesla (TSLA) as a hold with an equal amount of analysts rating it a buy and a sell. If you were able to take Tesla stock at the March lows or even better the previous December's lows? I would be selling that stock off right now. The earnings per share are predicted to go up but that's been accounted for in those valuations of the share price. Take the 300% profit and run. There are plenty of hot IPOs coming up in the run to the American winter and the Australian summer. Not the least the big FAANG stocks and some other technology stocks such as NVIDIA and Activision/Blizzard that will have some growth in them post September.

It's a bear, take the profits and wait until the Robinhood investors drive the price on Tesla down to a point where there's expected growth again. On the other hand? You'd make Elon Musk a very happy man if you all continued to rally around Tesla stock and make both him and the executive team at Tesla a lot of money. The better buy right now would be the Tesla Model 3 itself, that might lose a little less overall value.

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(Marcus does not own any holdings in Tesla or the aforementioned automotive manufacturers. He does have holdings in Apple and Activision/Blizzard as mentioned above.)

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Comments (20)

  • Not much use when the whole State is blacked out for a day or two...

      7 months ago
    • It was built after the state blackout to prevent it buddy - and it's not meant to power the entire state it's meant to prevent surge related blackouts by balancing the grid. Happy you're still operating in willful ignorance of fact though.

        7 months ago
    • The power comes from Victoria via the inter connector, which got blown down in the big storm. You can do all the balancing you like, but if there’s no power, it’s a blackout. Maybe Mr Gupta will build his giant solar thing and save the day.

        7 months ago
  • Fair call. But as with the power battery in South Australia. It really hasn’t helped us much at all. We still outsource the bulk of our energy from Victoria. So it was more of a PR stunt than actually helping the local south Australians

      7 months ago
    • The battery wasn't meant to power the entire grid, it's used to stop surge related blackouts which it's been successful in doing. That argument has always annoyed me a little - it's like saying a car doesn't do its job because it doesn't fly.

        7 months ago
    • It’s doesn’t atop the surges. Not last winter anyways. I was still blacked out along with 1000’s of other residents. It really hasn’t helped

        7 months ago
  • How has he “fixed “ the SA grid? It’s a 100mw battery, it lasts for only one hour at full delivery then it’s done- and if it is used and recharged at the maximum, it might last 10 years... it would power Qld at its peak load for 36 seconds..

      7 months ago
    • That should be MW, not mw.

      Balancing electrical grids is not about replacing generation capacity, it is about filling in small capacity deficiencies whiles generation comes back on stream.

        7 months ago
    • Happy someone has enough intelligence here to research the issue at hand and explain that the commercialised Tesla battery in SA was never meant to power the entire grid. They call those problem-based solutions.

        7 months ago
  • How odd that you got so many facts wrong but your overall point is still valid.

      7 months ago
    • Sorry Will, I'd love if you could leave which facts you wanted to dispute here. It's a bit hard to provide you with evidence when you only give me a small fraction of the complaint.

        7 months ago
    • I would like to see evidence of this battery working lol. Living in South Australia it seems the battery must be switched off or sumn. Probably get more help in the grid from the solar farm in tailem bend lol

        7 months ago
  • Does anyone want to buy shares in my heavenly apple pie that I just made for god? It's got angel wing dust in it and cinnamon.

    Oh sheet I just ate it, your in trouble with little hope of it being resolved.

      7 months ago