Tesla: (Still) an investment car wreck waiting to happen

Friday, May 17, 2019

"We are not playing. This is the car to beat for the future, for all our competitors."
— Jurgen Stackmann, head of VW sales

There are three subjects that are guaranteed to fill up my mailbox with hate mail: (1) anything negative about Apple's stock, (2) anything positive about Donald Trump and (3) anything critical of Tesla.

Well, let the hate mail begin. That's because I'm going to give you even more reasons why Tesla's stock is headed down the toilet.

Earlier this month, more than 10,000 people paid 1,000 euros ($1,120) in the first 24 hours to reserve the new Volkswagen ID.3 electric hatchback. The ID.3 earned the nickname the "Tesla Killer" by the International Business Times.

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(Note to Tesla fanatics: Don't forget to send some hate mail to the IBT, too.)

In fact, Volkswagen's website was temporarily overwhelmed by the sheer number of orders. This was despite the fact that these new VW cars won't be delivered until mid-2020.

That's impressive!

VW hopes the ID.3 will be the electric-car successor to the iconic Beetle. It is being sold for just below US$45,000 and has a range of 260 miles, with the base US$33,700 version coming later with a lower range of 180 miles.

Volkswagen expects to sell 100,000 in the first year, but the VW ID.3 is the just one of more than 20 battery-powered cars that Volkswagen plans to roll out. Its VW e-Golf is already a big seller in Europe.

Europeans are ahead of Americans when it comes to embracing electric vehicles. In Norway, for example, 58% of all new car sales in 2018 were electric.

But those sales aren't Teslas.

The Tesla Model 3 was the best-selling electric vehicle in 2018 globally. But its Model 3 sales dropped from 5,315 to 721 in Norway — an 86% plunge. Meanwhile, sales of the all-electric Volkswagen e-Golf leapfrogged Tesla to become the No. 1 selling electric car in Norway.

Nissan, BMW, Audi, Renault and Kia also offer all-electric vehicles in Europe.

Tesla did have the electric car field all to itself ... but not anymore.

The biggest reason I think Tesla is an investment car wreck waiting to happen is that the market has such high expectations for it. Tesla stock trades at 40x its forecast earnings, way above its automotive peers, and 615% more than Volkswagen's 6.5x earnings.

I mean, come on — why pay 40x earnings for Tesla when you can get an established automaker that is about to kick Tesla's shiny bumper at 6.5x earnings?

To be fair, sky-high valuations are fine as long as a company lives up to those lofty expectations. But any stumble or misstep (and Tesla has had plenty of them) will chop off 20%, 30% or even more from its valuation.

By the way, Tesla lost $700 million last quarter.

Tesla cars are pretty darn good-looking. But good looks alone do not make a good investment, just like good looks alone don't make a good wife.

Believe me, I know.

Best wishes,
Tony Sagami

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