Last Updated on February 28, 2020
The more things change the more they stay the same…
Tesla is and remains one of our biggest and our best short positions. … We are still bears.”
– Jim Chanos
There’s been a lot of buzz about Tesla lately, yet it’s visibly volatile stock prices make it one of the riskier choices on the market. Investor perception seems to sway back and forth between it being the future of sustainable transportation or with its ground breaking developments or a company getting ahead of itself by releasing shares as often as they do. Compared to their competition, many of the company’s technological innovations are more impressive from a style perspective rather than an engineering one. This may lead Tesla down the same path as Apple, which generated a lot of excitement with their iPhone, but ended up being a disillusioning many investors. At least that’s what many analysts seem to think.
From a technical trading point of view it’s interesting to note that this month it’s stock prices exceeded not just the 2018 peak, but also their all time high by over $20, breaching the notable $378 resistance line while doing so. This line previously stopped three break out attempts, triggering a significant rebound each time. Now that price is above the line, it may act as a solid support for the time being. Given given the stock’s price histor, it would make sense to try and aim for a short position, rather than assume it’ll continue to rise, however, could there be more to it than just technical analysis and fundamentals?
Tesla stands out from other manufacturers in a very specific way. Their environment focused technology, artificial intelligence work and futuristic design represents the modern 21st century auto industry. Musk has shaken up the sector’s conventions that are rooted in 80-90 years of history. This puts him a step ahead of of the competition. His company only sells approximately 3,000-4,000 cars each year, which is just a fraction of the 80 million cars sold globally each year. Despite that, this brand with its 0.3-0.5% market share can somehow force major companies to follow in its footsteps.
Announcing new factories in Germany and China is another good sign of the company’s progress. It shows how now that they’ve solidified their position on the domestic market, they’re looking to branch out globally. Part of that effort is Tesla’s indirect marketing campaign to make itself known to the European and Asian markets. The famous clip of breaking the allegedly unbreakable glass window of the recently introduced Cybertruck certainly contributed to that effort with how quickly it spread.
Tesla is a company that fundamentally revels in scandals. Elon Musk’s willingness to take risks is one of the main resons it gets noticed by both other larger manufacturers and customers as well, despite their marginal market share. The cost of entry into the auto market is exorbitant and Musk finances it by constantly issuing stocks. The risk here is that the company has to actually make the income required to pay the dividends on all these shares. That or issue more shares to cover it, at which point it almost starts looking like a Ponzi scheme. This is also one one the main concerns with the stock. Betweem acquiring the capital necessary to develop new cars, expand production capacity and paying back shareholders, the company’s under significant pressure to deliver results for investors.
There are very few shares that make investors feel as conflicted as Tesla does. On one hand it seems a promising target for investment, on the other it’s also highly risky. The payment obligations they have on the books are now up to billions of dollars, which is no big deal to any of the major manufacturers. Once this level of debt becomes unsustainable, they’ll be forced to repurchase their shares at which point prices will likely rise again.
