Why is TSLA so lackluster?

[GaryInCO]

I have ALWAYS sucked at stock investment. Back in the 80's I had friends beg me to tell them whenever I bought or sold anything, so they could do the opposite. I eventually quit putting money in my IRA because I got tired of watching it go up in smoke when I tried to invest it, or had someone else manage it. It's worth less now than it was in 1990. Thank God for real estate or I'd be flipping burgers in my dotage.

But I've followed TSLA for a long time. Up until Musk's recent shenanigans, I really thought they had it nailed.
* I believe they're the only company that actually sells EVs in quantity for a profit, and they make a fat profit on each car. This gives them tremendous pricing power and leverage.
* They've invested billions back into the company (R&D, gigafactories, etc) and they still have $17B on hand.
* They've beat earnings estimates 8 out of 9 quarters, and just barely missed the 9th.
* While they've partly caught up with demand, they generally have more demand than they can supply. Supposedly the Model Y was the best-selling car (not just EV) in the world in 1Q2023.
* They're masters at scaling up. They went from "assembling cars in a patchwork production facility in Fremont" to "massive custom gigafactories in Texas, Nevada, New York, Berlin, Shanghai, and Mexico" -- in less than 10 years. They're currently making almost 2 million cars per year.
* They have new products in the pipeline with huge waiting lists -- Cybertruck, Semi, etc. There's a fair chance they'll start shipping those this year, and then they're only limited by how fast they can build them.

And on and on. That sounds to me like a huge winner: customer demand, pricing power, good technology, mostly good execution, etc. I bought some TSLA in 2020 and 2021, with an average price of about $250. My brother the Tesla fanboi (who was managing our mom's estate) insisted on buying a bunch more (1 week before the peak), bringing my average up to $300. Then TSLA tanked for all of 2022, to 66% below my entry price. At the end of 2022 I said "this is a stupidly low price for such a successful company" and I put in a big order to buy at $100. It got within $1.81 of my price and took off.

So you can see what kind of results I get. It's still 18% below my entry price.

Tesla definitely fumbles the ball on a lot of things, and Musk has been an idiot in a lot of ways, but business-wise they seem to be doing well. So why has the price gone sideways for years? Why has their stock gone more or less neck-and-neck with F, TM, GM, etc?

 

[NW-Bound]

Tesla is selling a lot of cars. Its cars are not bad. I have said while I do not care for the CEO, I see that Tesla has lots of good engineers.

Stock wise, Tesla stock is still richly valued. The market capitalization of the company is $791 billion today. Its trailing 12-month revenue is $81 billion. So, Tesla's valuation is almost 10x revenue.

Back in the tech bubble in 2000, Sun Microsystems was also valued at 10x revenue. Later, Scott McNealy, CEO of Sun had this to say:

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

 

[NW-Bound]

And speaking of companies valued at 10x revenues, here's a chart showing the percentage of companies with this rich valuation back in 2000 and now.

Source: https://www.bermanscall.com/behavioural-finance/when-are-you-paying-too-much-for-growth-stocks/

 

[aja8888]

Tesla is selling a lot of cars. Its cars are not bad. I have said while I do not care for the CEO, I see that Tesla has lots of good engineers.

Stock wise, Tesla stock is still richly valued. The market capitalization of the company is $791 billion today. Its trailing 12-month revenue is $81 billion. So, Tesla's valuation is almost 10x revenue.

Back in the tech bubble in 2000, Sun Microsystems was also valued at 10x revenue. Later, Scott McNealy, CEO of Sun had this to say:

Ah, Sun...I lost some money with their stock back then. I couldn't sell it fast enough when the bottom fell out. I did have one of their big computer monitors back then. It was very nice, and heavy.

Scott's son is a PGA golfer (2nd year I believe)

 

[RetiredAt49]

Except for my algorithmic day trading platform I built, I only invest in broad-based index funds because you never know how individual companies will perform over the years.

 

[Route246]

I live in NorCal and a lot of friends, colleagues and ex-colleagues are ex-Tesla. The stories I hear are consistent and mostly disparaging regarding the treatment of employees, many in engineering who are highly compensated. The company tends to burn employees out which results in tremendous brain drain, a hidden expense when challenges emerge internally. This is devastating for a company like Apple or Amazon where customer-focus is a number one core value, almost non-sequitur for Tesla since they have deprioritized customer service and product quality as part of their core values. They just lost their CFO this week, too.

They have some hidden liabilities that don't get much press, the most prominent is the self-driving option (Autopilot) that many paid for but have not received the promised benefit as class action lawsuits work their way through the courts.

Overall, product quality is comparatively poor but strong customer loyalty masks that effect, at least until viable competitors evolve which will most certainly happen. This, along with their CEO, is probably their most significant vulnerability.

Their motor and drive technology is top tier and has been torn down and reverse engineered by every competitor that marvels their engineering staffs. Only a matter of time until that begins to normalize and the competition starts to catch up.

It doesn't matter how much cash they have in the bank, as Musk has called his factories "money furnaces" and are quite capable of burning up huge amounts of cash and once you run out of cash you are effectively at the mercy of someone else, most notably your bankers and bond holders. If things edge off this slippery slope the stock price will soon follow.

 

[Mr. Tightwad]

TSLA stock YTD +131%

 

[stephenson]

Tesla has one issue - a narcissistic CEO.

 

[NW-Bound]

^^^ If that were not an issue, would you buy?

I still would not at the current price, because of the high valuation.

 

[CaptTom]

Tesla, and it's CEO, are both fascinating studies in economics and psychology, respectively. But we're here to talk about the former.

No doubt TSLA disrupted the industry. Or more accurately, almost single-handedly created the EV industry. Before them, it was a niche.

But that doesn't guarantee long-term success. For all the reasons mentioned above, I'd consider TSLA a risky investment. Maybe they'll find a way to regain the luster of when they were new and fashionable. But the thing about any fashion industry is that it's hard to stay on top. Personally, I don't pay extra just to be seen in something stylish, so I'd never be a Tesla customer, either.

 

[VanWinkle]

Tesla has one issue - a narcissistic CEO.

Narcissistic because he does not conform?

 

[Aerides]

Mod Note:

Anyone who isn't aware that Mr. Musk is a polarizing figure should google a tad. As a result, any discussion of him heads south quickly, and with it, any thread about him or his products.

 

[USGrant1962]

Tesla stock's PE ratio is 71, making its earnings yield 1.4%. Why would anybody bid up an investment that is earning only 1.4% on share price? Tesla is no longer a startup that might grow into a PE like that, it is a relatively mature and, perhaps, overvalued company.

If you want to actively trade TSLA it has a high variability bouncing around between $100 and $400 over the last three years. But the real returns were captured by people that bought before 2020.

 

[Qs Laptop]

TSLA stock YTD +131%

Precisely. It depends on when you buy. TSLA is volatile and if you buy the dips you can do pretty well.

I bought at $112 in September 2020. +121.04%
I bought at $231 in May 2022. +6.86%
I bought at $150 in December 2022. +65.04%

It's not a lackluster stock for me!

 

[Gumby]

Plain to see, CEO is a jerk, no one want to be associated with him or his car.

You should read and consider what Aerides wrote just two posts before yours.

 

[Qs Laptop]

Plain to see, CEO is a jerk, no one want to be associated with him or his car.

No one....

 

[Gumby]

But that is the material reason, so hard not to state it.

No, you don't have to state it. When a moderator posts asking people to remain within the lines, you should heed that post. Failure to do so results in thread closure and sanctions for those who do not comply.

 

[NW-Bound]

Tesla stock's PE ratio is 71, making its earnings yield 1.4%. Why would anybody bid up an investment that is earning only 1.4% on share price? Tesla is no longer a startup that might grow into a PE like that, it is a relatively mature and, perhaps, overvalued company.

If you want to actively trade TSLA it has a high variability bouncing around between $100 and $400 over the last three years. But the real returns were captured by people that bought before 2020.

If Tesla in the future somehow manages to drive all other car makers to bankruptcy and becomes the sole car maker in the world, what should its valuation be?

One can add up all the existing car makers, Toyota, Honda, Ford, GM, BMW, etc..., then compare the total to the current valuation of Tesla to see. He will be in for a shock.

Tesla knows the above of course!

And that's why to show the potential for growth, it tries to do other things, such as robotaxi, robots, home solar, AI, etc... But even here it faces fierce competition in all areas.

Take robots for example. Tesla demo of its experimental robots is so comical, compared to the premiere robotics company Boston Dynamics. Just search YouTube for the latter company to see.

In home solar, Tesla business there is not a big part of its operation, is not growing much and not contributing much to the top and bottom lines as I have read.

In short, it's hard to see that Tesla top and bottom lines can keep growing in the future at the rate that it demonstrated in recent years. And it has to do that to earn its current valuation. Not impossible, but tough.

PS. Further more, Tesla has to reduce EV prices to fend off competitors. This cuts into the profit margin of its principal business, while it is spending money doing "other things".

 

[Chuckanut]

As far as Tesla driving all other auto manufacturers to bankruptcy, I can only remind people that a few years ago Tesla was going to go belly up in 2019 according to many so called experts in investing and auto production. Google this, the articles are not hard to find. Tesla had too much debt to survive, production problems, had picked the low hanging fruit, etc. etc. etc. Short sellers where haunting the stock expecting to make a killing. We know how that turned out.

I have no idea how Tesla, GM, Ford, VW, Toyota, etc will do in the future. That’s why I buy index funds. MY 2¢. YMMV.

 

[audreyh1]

I own a Tesla, but never owned TSLA. DH was occasionally interested, but he already had too much AAPL. We were well past buying individual stocks anyway.

Quality? We’re very happy with ours including the quality. Don’t assume poor quality is a given.

 

[NW-Bound]

As far as Tesla driving all other auto manufacturers to bankruptcy, I can only remind people that a few years ago Tesla was going to go belly up in 2019 according to many so called experts in investing and auto production. Google this, the articles are not hard to find. Tesla had too much debt to survive, production problems, had picked the low hanging fruit, etc. etc. etc. Short sellers where haunting the stock expecting to make a killing. We know how that turned out.

I have no idea how Tesla, GM, Ford, VW, Toyota, etc will do in the future. That’s why I buy index funds. MY 2¢. YMMV.

You don't have to remind me, as I remember this period very well. Musk was nearly in tears when he said in an interview that car mass production was so tough. Later, he said Tesla was about a few weeks from filing bankruptcy, as its money was running out.

Of course, we all know Tesla pulled a rabbit from the hat. There will be books written on this.

About the stock, it is so volatile that one can make a lot of money jumping in/out, but darn, this is like a meme stock that it's hard to make any head/tail out of.

So, despite being a quite active investor, more than most on this forum (I have 100+ stocks), I have been sticking with stocks that are older, more stable, so that I can hold for long term, and write call/put options on to make some extra money. Tesla stock for me is "look but don't touch".

 

[aja8888]

You don't have to remind me, as I remember this period very well. Musk was nearly in tears when he said in an interview that car mass production was so tough. Later, he said Tesla was about a few weeks from filing bankruptcy, as its money was running out.

Of course, we all know Tesla pulled a rabbit from the hat. There will be books written on this.

About the stock, it is so volatile that one can make a lot of money jumping in/out, but darn, this is like a meme stock that it's hard to make any head/tail out of.

So, despite being a quite active investor, more than most on this forum (I have 100+ stocks), I have been sticking with stocks that are older, more stable, so that I can hold for long term, and write call/put options on to make some extra money.

One bad quarter will sink this stock. All the hedge funds will bail and so will retail customers. The computers will be dumping it like mad.

 

[NW-Bound]

I own a Tesla...

Quality? We’re very happy with ours including the quality. Don’t assume poor quality is a given.

I believe you. The same as I believe other Tesla car buyers who complained.

There were plenty of YouTube videos showing evidence of poor paint jobs, misaligned parts, etc..., although I have not looked recently.

I think Tesla cars are well designed. I have said I believe that Tesla engineers are very good.

However, production issues are different. I have never worked in industrial production, but can see that when workers are exhorted to increase production to meet the quarterly goal, they may not spend the time on an assembly step to make sure things are put together the way they should.

Thus, uneven quality, and your car may be slightly different than the next. Again, I don't know if this problem persists, but there was plenty of evidence in the past.

 

[Ian S]

In home solar, Tesla business there is not a big part of its operation, is not growing much and not contributing much to the top and bottom lines as I have read

Tesla bought Solar City to get into the solar business. Solar City was known for its, shall we say, aggressive business practices and was subjected to numerous investigations and lawsuits.

 

[freedomatlast]

Quality? We’re very happy with ours including the quality. Don’t assume poor quality is a given.

I don't own a Tesla and have no interest in doing so. The quality issues are real. I tend to believe what I have seen with my own eyes over any internet discussions. I have seen the sagas of two owners who have repeated quality issues and many times back to the dealer for the same issues that remain unresolved. The vehicles just sit unused because of the lack of parts availability. The last time I discussed the details, the comments were removed so I'm going to respect the mods decision and refrain from getting into the specific details again in this forum.

Not a buyer of TSLA stock because I believe in the long term, the automakers who have been around longer, will make better EV's. If Tesla goes under, the vehicles will become almost worthless, given the dependency on the manufacturer.