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Tesla On The Edge

|Includes: Tesla, Inc. (TSLA)

Today Tesla (NASDAQ:TSLA) approved the Solar City (SCTY) deal. It is done. By some reasons, there are not a lot of excitement among the investors about that. Below some points to consider

A little bit of Politics

  • Interest rate increase comes in December and it is going to be more expensive for Tesla to raise money.
  • Electric cars and alternative energy were favored by the previous president Mr. Obama. Current president Mr. Trump does not look like an ecology friendly one. It is unlikely we will see the continuation of the Government's favor toward the Tesla company. If a new Government plans to cut corporation taxes it will not help Tesla - the company does not have profit. However, tax cut pushes the Government to cut some of the expenses
    - the Government may stop giving Tesla money;
    - the Government may ask to start returning money;
    - the Government may stop tax credit on electric cars and etc.
  • Ford, BMW, Mercedes and all other car companies are heavily investing into the electric cars - competition is growing aggressively

Without the Government support, if Tesla does not become profitable writhing the next 1-2 years, it is going to be difficult to do it later when the market will be flooded with competitors' electric cars.

If Musk's ability to rise the funds fails, the Tesla's stock could be in very sensitive position. The Solar City deal's approval already suggests that the Tesla's investors could be put into the situation and if they want their investments back, they should do whatever Musk says and they should give him more money.

A little bit of Fundamentals

  • By itself the Tesla operates on negative Cash Flow.
  • The Tesla needs to raise money to stay alive.
  • Heavy debt and negative cash flow of Solar City could be too heavy for Tesla to swallow.

Bailout of the cousin's company may play drastic role in the Tesla's future. taking into account the tendency of the new Government to abandon environment friendly technology the Solar City deal could become suicidal for the Tesla.

At the current moment the Tesla's
PEG Ratio = -2.54
Diluted EPS = -6.32

Current AAA Rated Corporate Bonds Yield: 3.41%

With such statistics, according to the Benjamin Graham's formula, the Tesla Intrinsic Value would be $-23.49 per share

By playing more with Benjamin Graham's formula, we may assume that it if Tesla manage to raise its PEG Ratio to 4.4 (he same as for Ford) then in order to be evacuated at $188, the Tesla's Diluted EPS should be around 8-9

It is difficult to say how realistic these numbers are for the Tesla and whether they may reach them in the near future. If not the Tesla's stock is doomed to decline lower.

A little bit of Technicals

Over the past two and half years the TSLA stock has been bouncing from the it's $180 support. Now, this stock is down again around this support. Increasing volume, negative money flow and increasing volatility suggest it may go deeper down.

Chart courtesy of

At the end

The Tesla show to the world that the electric cars is the reality and the electric self driving cars are the future. However, at this point of time the conditions do not favor the Tesla company. If it does not show the profit it could crash. The electric and self driving cars could be the only future in the car business, however, it is not a near future.

In 10, 20, 30 years this stock could be tens and hundreds time above its current price. At the same time, the next 2017 year could be extremely difficult for this stock.

The Tesla became big, it has, production and proprietary technologies and it cannot be destroyed easily. However, at this point of time, nobody even trying to buy the Tesla, it is like everybody are waiting this stock to drop.

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