Pfäffikon SZ, Switzerland – Instead of the projected 80,000 Model 3s, Tesla only sold 1,770 of these cars in 2017. The fact that Tesla’s share price rose roughly by 50% percent in 2017 and has a dizzying market value does not reflect an expected healthy financial foundation. The investor apparently believes in the slick marketing strategy of Mr. E. Musk in combination with a sophisticated Chinese product. It needs to be said; Tesla deserves the honor to be the first to make electric driving attractive to a larger audience. The key question is whether Tesla will survive his own success.
When it comes to Tesla, everyone has an opinion. One person thinks it is an overvalued car builder; the other thinks it is a battery manufacturer and the third person says it is a company that is active in the solar industry. The fact remains that Musk is a confirmed and very successful magician and that he takes good care of his family. The undersigned is officially pulled out after juggling at the stock market by Tesla.
After all, Tesla bought SolarCity for USD 2.6 billion, but nobody can explain why. Tesla did not need SolarCity to start selling solar energy in Tesla’s showrooms or to develop the sunroof. This sunroof was already a Tesla development in the base. It, therefore, seems to have been a rescue package for Musk and his cousins Lyndon and Peter Rive, who would have lost hundreds of millions, if not billions, if SolarCity had gone bankrupt. This all on the back of the Tesla shareholder and it also makes the original business model of Tesla cloudy. Usually, investors do not like unclear investment environments.
Meanwhile, the establishment of the automotive industry is not standing still. Tesla can prepare for a laundry list of competition in the years to come. Currently, Tesla is burning about USD 500,000 per hour (!), Also known as the ‘burn rate,’ and subsidies disappear like snow in the sun. Investors who have experienced the latest tech bubble still remember the so-called ‘burn rate.’ Tesla is completely dependent on the enthusiasm and patience of the financial markets or the deep pockets of an unknown prince on the white horse. It does not surprise me that Musk presents one to another test balloon to keep the Tesla dream alive.
This week I studied the topic of Tesla options at the stock exchange. Usually, I pass all variants before a position is taken. The result of my regular research is, on the one hand, shocking and the other hand understandable. The puts for Tesla are – regarding valuation– much more expensive than the shares themselves. Apparently, the market does not rule out a possible collapse of Tesla given the current pricing in publicly tradable put options. For investors and believers in Tesla, it is advisable to consider this public market information.
It remains for me to wish you a good weekend.
Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.