Tesla (NASDAQ: TSLA) dipped below $200 this week for the first time since 2016. A year ago, it would have seemed inconceivable for bulls that Tesla stock would be battling to hold the $200 level. However, CEO Elon Musk's empty promises and poor decisions have finally started to sink in to the market.
Tesla has become one of the most popular and profitable short selling targets in the market. However, no matter how bad the numbers at Tesla get, the company will never go bankrupt, and Tesla stock price won't go to $0.
For months, Tesla missed Model 3 production target after target. In hindsight, it appears these production misses were mostly a function of Musk's unrealistic expectations. Tesla nearly delivered as many vehicles in 2018 as it did in all prior years combined. Yet because Musk set the bar so high, those otherwise impressive growth numbers were seen as a disappointment by the market.
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Still, Tesla stock stayed above $250 throughout 2018, even when Musk agreed to a fraud settlement with the SEC. Tesla bulls seemed to be pinching their nose and enduring the production disappointments, and understandably so. After all, production issues are a temporary problem.
A Closer Look at Tesla Stock
In 2019, Tesla's problems are looking much more long-term. Analysts have repeatedly discussed lack of demand for Tesla vehicles as the major question mark for Tesla.
"We continue to have major concerns around the trajectory of Tesla's growth prospects and underlying demand on Model 3 in the US over the coming quarters," Wedbush analyst Daniel Ives said.
In addition, Model 3 margins and sustainable profitability are still major unknowns. Tesla once again has to raise capital last month to continue its operations.
Ives is somewhat of a long-term TSLA stock optimist given his $230 price target. However, former Kase Capital Management hedge fund manager Whitney Tilson said the Tesla sell-off is just getting started.
On March 4, Tilson famously made the bold prediction that Tesla stock will drop below $100 by the end of 2019. At the time, Tesla was trading at $295 and the prediction inspired some chuckles among Tesla bulls.
Less than three months later, TSLA stock is down about $90 from that level. The $100 target is looking less crazy by the day.
Like Ives and other analysts, Tilson's primary issue with Tesla is demand.
"Tesla cars, however cool they might be, were, are, and will always be niche products for coastal elites," he said.
However, while there is still plenty of downside opportunity for short-sellers based on Tilson's $100 target, he says there is a reason why his target is $100 and not $0.
"I never doubted that the company could raise capital in this environment of seemingly endless STOOOOOPID money," Tilson said.
Tesla Stock Has Value
At this point, I think it's safe to say that Tesla is a poorly-run company. But that fact alone doesn't mean it is worthless. Even if Elon Musk's plan of taking Tesla mainstream fails miserably, there is still value to the company.
Elon Musk is so beloved and is such a good marketer that he will likely always be able to raise more money. In addition, Musk could also take Tesla private (for real this time) at the right price. Whether that price is $100, $150 or $50 per share is certainly debatable. However, I have a hard time seeing Musk standing idly by while Tesla stock price drops to $0.
Finally, most of Tesla's problems up to this point have had to do with the difficulty and cost of expanding its operations globally. Musk's reputation has taken a beating in the past couple of years, but Tesla's brand is still relatively valuable, particularly among the "coastal elites" Tilson described.
To think companies with global infrastructures and/or massive resources like General Motors (NYSE: GM) and Apple (NASDAQ: AAPL) don't recognize the value in Tesla's technology and brand would be extremely naive.
General Motors has always been "the enemy" for many Tesla investors, but Tesla may not be the enemy for GM. A buyout of Tesla would certainly stretch the GM balance sheet at $200 or $250 per share. But a price of $100 per share would put Tesla's market cap under $20 billion and make a takeover much more reasonable.
Bottom Line on Tesla Stock
As with most things in the market, the reality for Tesla is likely somewhere between the optimistic bull thesis and the pessimistic bear thesis. It's going to take at least several quarters for Tesla to demonstrate meaningful progress towards proving a viable large-scale business model. In fact, it may never get there.
In the meantime, TSLA stock will likely continue to bleed. I don't know if Tesla makes it to $175, $100 or $50. But Tesla isn't going away, and TSLA stock isn't going to $0.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
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