Why Cramer Is Right To Call Tesla A 'Sell'

| About: Tesla Motors (TSLA)

Tesla Motors (NASDAQ:TSLA) is a designer and manufacturer of electric vehicles. In a recent Mad Money Lightning Round, a caller asked host Jim Cramer about Tesla. The call is detailed in a CNBC article that states, "Cramer doesn't like this stock. If you own it, cut your losses and sell." I think Cramer is right to say sell, and there are a number of reasons why.

  1. A new Reuters article states: "The limitations of the electric cars right now are all well known," said Houchois. "They will not be replacing combustion engines anytime soon. A lot of people aren't going to replace their cars with electric cars. The industry is reluctant too. Every electric car you sell is a combustion car you don't sell."
  2. Tesla has reported losses, and analysts expect the losses to continue into 2012. Auto sales estimates for almost all makers are coming down substantially, so it's very likely that Tesla might not sell as many cars in 2012 as some previously expected. Plus, in a tough economy, consumers are less likely to buy expensive cars from a relatively new automaker.
  3. Green jobs have been a huge disappointment for many, and some green company stocks ranging from solar to wind have been in a very sharp downtrend. The market correction has taken the air out of many stocks in the green sector. The business realities and major losses have turned many high profile, promising green companies into huge disappointments for investors in certain stocks, such as Evergreen Solar (OTC:ESLRQ), which now trades on the pink sheets for about 11 cents. A company once visited and praised by Obama, Solyndra received hundreds of millions of dollars from government agencies, and the company recently filed for bankruptcy.
  4. Oil prices have been dropping, and that makes gas much more affordable. Plus, as the Reuters article outlines, automakers are making so many refinements to weight, fuel efficiency and other factors that regular cars and hybrids are narrowing the gap with electric vehicles.
  5. Tesla shares have been in a downtrend and do not appear to have found a solid bottom. The stock is only about $3 away from possibly hitting new 52-week lows.

Here are some key points for TSLA:

  • Current share price: $22.88
  • The 52-week range is $19.50 to $36.42
  • Earnings estimates for 2011: a loss of about $2.20 per share
  • Earnings estimates for 2012: a loss of about $1.60 per share
  • PE Ratio: n/a
  • Book value: about $3.35

Data sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.