Tesla Stock: ‘No Reason to Own’ It? Here Are a Few


Oct. 4 2019, Published 12:55 p.m. ET

Tesla (TSLA) stock is down 30% year-to-date. This marks a significant underperformance given the 16% and 21% gains recorded by the S&P 500 (SPY) and the Nasdaq Composite (QQQ), respectively.

The major concern with the stock has been profitability issues. The company delivered a record number of cars in the second quarter. However, it still recorded high-than-expected losses in the period. Most investors are concerned about how long it will take Tesla to turn profitable on a sustainable basis.

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Tesla’s third-quarter deliveries underwhelm

On October 2, Tesla released its delivery report for the third quarter. While the company was able to post another record quarter with 97,000 deliveries, it missed Wall Street’s estimate of 98,000. This didn’t go over well with the market, and the stock tanked 4.2% on October 3.

Analysts change their tune on Tesla

Several analysts have downgraded Tesla stock since. On October 3, JMP Securities downgraded TSLA stock from “market perform” to “market underperform” on demand concerns. As per CNBC, JMP Securities analyst Joseph Osha said, “The delivery data show low single-digit sequential unit growth, and we know of no operational issues that could have prevented TSLA from delivering more vehicles if demand were available.” We’ve discussed this topic in detail in Tesla: Are Analysts’ Demand Concerns Justified?

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Tepper: “Absolutely no reason to own” Tesla

President and CEO of Strategic Wealth Partners Mark Tepper has also come down heavily in Tesla. On October 4, as per CNBC, Tepper said, “I don’t think it’s going to be worth betting on anytime in the near future.” He added, “What you have here is you have a company that’s just quite frankly notorious for overpromising and underdelivering, so there’s absolutely no reason to own the stock right now.”

Tepper’s Tesla criticism

The wealth manager then cited a number of factors influencing his current dislike for Tesla. As per CNBC, he said the company has margin concerns and a poor track record in China, and overall vehicle demand is declining.

In our opinion, while some of these concerns are justified, others aren’t. In Tesla’s Profitability, Not Demand, Could Be a Problem, we said that Tesla’s profitability concerns are valid to an extent, but the company is working on a number of things to make itself sustainably profitable.

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Strong demand in China

Tesla is seeing strong overall demand in China despite overall declining EV (electric vehicle) sales in the country. Read How Tesla Plans to Lead in the EV Race in China for more on this. Moreover, with the start of the company’s China Gigafactory, demand is only expected to rise.

Tepper also cited increased competition to justify his bearish call on Tesla. While the competition is increasing in the EV space, the potential for EVs to take a larger share of the overall auto market is also huge.

Turnaround catalysts remain in place

We think the market is being a little too harsh on Tesla stock. A delivery of 97,000 vehicles when the consensus expected 98,000 doesn’t seem like a miss that should warrant such a negative reaction. However, Tesla is known to divide the bulls and bears like no other company. The automaker has proved its critics wrong time and again by delivering on many promises.

Though we agree that timing hasn’t always been Elon Musk’s strength, the company has a lot of catalysts that could turn things around for it. Check out Tesla Turnaround Catalysts: China and Model Y Progress for more info.


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