Why is investing in Tesla so risky?

Gene Münster, a former technology analyst and current venture capitalist, thinks that Tesla will take over the world in the future. However, after the events of the last week, which brought us some negative news, Munster admits that the situation is experiencing his patience..

“Do we still believe in this beautiful story?” he asked in a research post on Loup Ventures. “The answer is yes!” Our support is based on the idea that the company is capitalized enough to fill the market with “computers on wheels”, introduce innovations, develop autonomy and introduce a new paradigm of production efficiency.

Of course, there is some truth to all this, but Tesla is no more unique project than Waymo and Jaguar, which last week announced a partnership in the development of unmanned vehicles. Or than General Motors, which sold thousands of all-electric Chevy Bolts for under $ 40,000. This car was released in 2016 – a year earlier than the Tesla Model 3.

Tesla is a part of the transport ecosystem in which there are many experiments attracting investment. And in this huge scheme, Tesla is a driven player. Yes, the attention is drawn to the brand by its famous CEO Ilon Musk. However, this is a car manufacturer that took 15 years to produce 100,000 cars a year..

In addition, Tesla Motors is a car manufacturer whose fans consider it breakthrough and militant, but this is also not the case. A company that sells 100,000 cars a year at an average price of $ 100,000 does not shake the market and industry..

Do not forget that Tesla is regularly under pressure from competitors. In fact, the rest of the car industry – contrary to the talk of Elon Musk about traditional manufacturers craving for the death of the project – is happy to see how Tesla boldly takes on all the risks of electric vehicle manufacturing. And even admires the appearance of such a zealous brand.

Fiction of a story that is not true.

Tesla investments

However, Tesla enthusiasts, such as Munster, were in a strange position. Profitability has long been an indicator of success in the automotive industry, characterized by good capital intensity. But Tesla Motors never made a profit. Growth in the automotive business is driven by sales, but with the exception of China, sales growth is limited in most markets. However, Münster believes that Tesla can sell 11 million cars a year in the United States alone, accounting for 65% of the market (of which 20% belongs to the largest player, General Motors).

Consequently, those who support Tesla have come up with a story that speaks of a radical change in our attitude towards transport and cars. This is not in line with attempts to commercialize propulsion technology that has existed for more than a century. I would even say that this is not a story, but a fantasy.

But the fantasy is profitable. Even taking into account the fall in Tesla shares by 30% over the past month, IPO 2010 participants who made investments in Tesla are currently earning a profit of 900%. For eight years, Tesla Motors has remained an excellent trading option for the future..

Tesla investments

The stock price is indicated at the time of publication of the article. Source: tradingview.com

It is important to understand when a fantasy or fiction encounters reality and becomes something else. From Tesla’s point of view, cars aren’t even a goal. Since the end of 2016, when Tesla acquired Solar City, it is a holding company with its own understanding of renewable energy. Electric cars are only part of this strategy..

But at the moment, Tesla is still mainly a car company, because it is in this direction that funds are received and spent. And it is this aspect of activity that is under tremendous pressure..

Information vacuum for investors.

Tesla investments

What for? It’s very simple: investors have no other reason to stay in business. It’s easy to gauge the successes of Toyota and GM. Just look how much money they earn from sales, how much return on invested capital, how much assets they have, and how much cash in case sales fall.

Tesla does not even tell investors about the monthly sales of cars, you must wait until the end of the quarter to find out these figures. Moreover, quarterly reports are simply an opportunity to assess the loss of money and learn about new ambitious production goals that are not being met..

Cars are cool, Musk is an amazing person, and Tesla herself told us a beautiful story for a long time, similar to the legend of Silicon Valley and its profitability, and not a tough story about how Detroit got out of a difficult situation for decades. But, ultimately, there were a lot of holes in the plot of Tesla. Therefore, investors are experiencing a crisis of confidence due to trivial problems with the power steering. The problems that a strong carmaker solves in a month and goes further.

Recently, the only thing that the majority speaks of is the financial position of the company. From a technical point of view, it is not very far from bankruptcy.

Meanwhile, from the side of Tesla comes a lot of attractive stories about how wonderful the company is and that it has nothing to do with “computers on wheels”. Tesla allegedly has no contact with Waymo for the development of unmanned vehicles, but it offers Autopilot technology – this is a Super Cruise system from Cadillac, which can be purchased additionally.

It is painful to look at Tesla’s “beautiful story”, which needs to “push through” this senseless, supposedly changing the whole world fantasy investors. They are becoming more skeptical. Tesla Motors has been a wonderful fairy tale for the past 15 years. And she can stay if she doesn’t want to take over the world.

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