This Year’s Lump of Coal? Tesla Stock!

Once again, my wife has dashed my Christmas hopes.

I didn’t want a sky-diving trip, or a hippopotamus. I simply wanted a Tesla Roadster. Preferably, a red, 2010 model. Those cars are streaks of lightning!

But I’m guessing from the size of the presents under the tree that I’ll be disappointed yet again.

Oh well. At least I can console myself with the knowledge that, while I didn’t get the Tesla car I wanted, I don’t hold the stock. That would have been the biggest Christmas dog of them all.

I’ve railed on Tesla as a company in the past…

I love some of their products, which is why I ask, in vain apparently, for a Roadster every year.

I’m not sure I need a Tesla surfboard (yes, that’s a real thing), or even a personal flamethrower (made by Tesla sister firm, The Boring Company). Those are just vanity products.

My dislike for the firm isn’t about the products it makes, it’s about the losses it creates.

Today should be Tesla’s finest hour. The company has several well-known and loved models, and it remains the only serious entry in the electric vehicle market in terms of desirable cars.

And yet, the company barely earnrned a profit last quarter by using governrnment subsidies for sales and selling zero emission car credits to other car makers.

Oh, and it also plunked out cars at such a rapid pace for its assembly line that quality didn’t just take a back seat, it stayed behind on the factory floor.

Tesla fell six spots in Consumer Reports’ quality rankings this year, dropping from 21 to 27, out of 29.

The fabled Tesla X, with its Falcon doors, has the dubious honor of being among the 10 worst cars for reliability on the market today. You’d better like the way it looks in the service bay and your driveway, because that’s where it will spend a good chunk of time.

Now Tesla faces several headwinds, any one of which could drive the company into a ditch.

The company can’t produce Model 3 vehicles fast enough to ramp up sales, and it looks like the waiting list is dwindling. It’s possible the company will eat through excess demand and will have to produce the lower-priced Model 3 that Tesla touted when the model was first unveiled. Lower-priced models produce lower profits.

And there’s the little thing about the subsidies…

Tesla sold its 200,000th car, which means that the governrnment subsidy of $7,500 for each car sold will be cut in half next quarter, and then eliminated after that. This drives up the cost of every vehicle by $7,500. That might not be a big number on a $100,000 Model S, but it will make a difference on a $50,000 Model 3.

It’s possible the governrnment will extend the subsidy, but that will take an act of a dysfunctional Congress.

But the biggest threat to Tesla isn’t self-inflicted.

The company set out to prove that customers would clamor for a well-designed, smoking-hot electric vehicle. It succeeded. But success brings competition, and it is coming on with a vengeance.

Today, I can drive to downtown Houston and buy the new Jaguar I-Pace in Photon Red for $88,000, which is comparable to the Tesla X.

Early next year, I’ll be able to drive to my local Audi dealership and pick up a new Audi e-tron.

But the one with the most promise in terms of combining cool and electric power is the Porsche Taycan, which should arrive by 2020.

These cars share some common characteristics. Premium brands make them, they perform at high levels, and dealerships support them in sales and service.

That last little bit about dealerships will be Tesla’s Achilles’ Heel.

Without that support network, owners in many locations are left to rely on a patchwork of qualified mechanics. Owners with vehicles out of warranty have few options.

By this time next year, Tesla will be one of several EV options, and most likely not the highest-rated choice. This makes today a great time to stay away from the stock, or even take a short position.

The Chinese governrnment just made that trade even more attractive.

In an effort to make a little headway in the trade war, China announced it would suspend tariffs on American cars. The news boosted Tesla’s stock, since the company sells in China. But competition here at home also means competition abroad. So the recent bounce in Tesla’s stock as the markets dipped should be a great opportunity to exit or buy puts, since I’m not one to sell short.

No matter how you choose to play Tesla, or whether you get involved at all, just remember it’s better to get one of its cars under the tree than shares of its stock.


Rodney Johnson

Rodney’s investment focus tends to be geared towards trends that have great disruptive potential but are only beginning to catch on to main-stream adapters. Trends that are likely to experience tipping points in the next 5 years. His work with Harry Dent – studying how people spend their money as they go through predictable stages of life and how that spending drives our economy – helps he and his subscribers to invest successfully in any market.