In a previous article I wrote on Tesla (TSLA), I outlined how I didn't feel comfortable investing in a company that was not yet showing profitability. I then expressed my issues regarding long distance travel. What I didn't expect was the large amount of push back I received. Waiting for a company to become profitable was apparently far too much to ask.
It reminded me of a quote from Benjamin Graham's intelligent investor, "Obvious prospects for physical growth in a business do not translate into obvious profits for investors."
In intelligent investor Bejamin shows examples that are very similar to the scenario of Tesla; such as air transport stocks in the 1940s. He then proceeds to explain how it is a huge mistake to assume any single company can take over an entire industry that already has competition present.
It was almost alarming the amount of worship for the Tesla stock that was present, as if somehow this stock was sheltered from everything in the world that causes a stock to go up and down simply because its prospects were potentially good. It also surprised me there was a perceived solid relationship between a company's potential and its stock. As if the dot-com bubble never happened or that our past 100 years of stock data and history has shown us that a stock can go down even if the fundamentals are great.
Amongst the you're wrong and I'm right comments, I was given some insights into Tesla I didn't originally have.
One of the most compelling arguments, for me at least, was that Tesla has the right marketing strategy. By targeting the luxury market this could give them revenue to support a push into the mass market. Why I agree with this initial assessment, the strategy actually hasn't work for them yet. The roadster wasn't enough to sustain them, and without the cash flow provided by large investors, they would be dead in the water.
This could all change, of course, if there is actually a follow through and low turnover for their current backlog and reservists.
Fast Charge Will Fix Everything
There were two responses I got regarding my range problem. The first was people were willing to trade if you need to do long distance traveling. This I found a little silly, you spend all this money on a sleek EV only to have to travel in your friends gas powered car when you need to travel long distances? There are a lot of metaphors for this, and none of them are good.
The other assertion, which I somewhat agree with is that EVs will become more viable as the infrastructure matures. The only practical issue I have with this is the fact that there isn't really anything "fast" about a fast charge station. In order to get a 3-4+ hour range on a common combustion engine takes maybe 2 minutes at a pump. Even with that you will get long line ups at gas stations, now consider a fast charge station that takes 45 minutes. If there was any kind of serious EV adoption this would become an issue quite rapidly. This would force you to have to charge your EV overnight or get lucky the next day because you will have to wait in a line.
It's all about Q4
Several people pointed out that the drop in revenue was caused by the roadster being phased out, and because of this, I should only be worried about the future. Several are convinced that when the Q4 results come out they will show Tesla as cash flow positive. In an article by John Petersen, an outspoken critic of Tesla, he reported that he got his hands on a research document from JP Morgan that stated, "For the fourth quarter of 2012, JP Morgan expects Tesla to report $275.5 million in automotive sales and $5 million in development service revenue. It also expects Tesla to report $18 million in gross profit, an operating loss of $84.2 million and a GAAP net loss of $86.2 million."
I am of the opinion that you're not going to lose out on that much stock price motion if you wait for Q4 results in February. If Tesla is truly a good investment, then there should be no hurry to get in because it could have 5+ if not 50+ years of growth ahead of it.
One of my biggest questions is why the CFO feels the need to cover short positions with his stock options.
(click to enlarge)
Whenever someone holding a long position makes bold declarations, I think it is important to realize that there is a bias there. Apple (AAPL) didn't get to their price point in a day. Everyone may tell you that you need to rush, that you're missing out on gains, but the reality is you're equally missing out on any potential losses.
In my opinion, if you're rushing, you're not in control. Why be a slave to dopamine? Q4 might change everything and I might find myself writing an article on why I think Tesla is a great long-term position but I will not reduce myself to what I would consider, in some cases, wild speculation just so that I can make a quick buck. I don't worship stocks or companies because I know they don't actually care about me in return.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.