Tesla Motors, Inc. (TSLA) shares plunged recently on news that two important employees have departed. A new article by Bloomberg states:
Peter Rawlinson, Tesla's vice president and chief engineer, and Nick Sampson, who supervised vehicle and chassis engineering, departed this month, according to Ricardo Reyes, a spokesman for the Palo Alto, California-based company. "Having completed conceptual and design engineering work on Model S, Peter has decided to step away to tend to personal matters in the U.K.," Reyes said yesterday. Sampson had "fully transitioned" off the Model S at the time of his departure, Reyes said without elaborating.
Whether or not the market overreacted to this news is hard to say. It's still too early to know, but for two key employees to depart just as the excitement and actual launch of the new Model "S" comes closer, the timing is worrisome for investors. The sell-off in the stock highlights the risks of owning a company like Tesla. After all, it's not likely that General Motors (GM( or Ford (F) shares would drop about 20% in a single day based on one or two executives leaving the company or the development team for a new model. It is a reminder that if Tesla has any failures, delays, quality or recall issues, investors could pay dearly. Tesla appears to be a very concentrated investment that is based a niche segment of the auto market, and its success rides on just a couple of models for now. Other automakers offer more diversification in terms of their product line. For example, GM recently reported quality problems with the Chevy Volt, but since the company has a wide variety of other models that are selling well, the impact of the Volt's issues are offset and minimal.
Aside from the employee departures at Tesla, as the Model "S" launch rapidly approaches, the execution risks are likely to mount, especially with high expectations and so much riding on the Model "S." It's not unusual for a major automaker to have "issues" or even recalls after introducing a new model. The difference is that many major automakers have more significant financial resources and model diversification to withstand these issues. If Tesla does not meet investor or consumer expectations when the Model "S" is launched, investors are likely to see major volatility and potential downside. Tesla does not have a huge product line or the financial resources of a company like Toyota (TM) for example, to fall back on. I think investors should put the "cool" factor aside and invest in auto stocks like GM and Ford. Both of those companies have upside potential and a much broader range of resources, product lines, and a larger employee base to fall back on.
Here are some key points for TSLA:
Current share price: $26.81
The 52-week range is $21.11 to $35
Earnings estimates for 2011: a loss of about $2.14 per share
Earnings estimates for 2012: a loss of about $1.91 per share
PE Ratio: n/a
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: 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.
