Tesla (TSLA) is a darling stock for the Electric Vehicle (EV) crowd. I have followed this stock, and to a lesser extent Elon Musk for many years. Prior to buying the stock in 2020, I actually traded some convertible bonds in TSLA. Our original stock purchase in 2020 had a cost basis of approximately $108. The stock peaked at around $413 in October of 2021. TSLA then plunged in the 2022 bearish market (it was a bear reversal in a long-term bull market) to a price around our cost basis. Then it bounced handsomely in early 2023 only to drop in the latter half of 2023. That decline continued into 2024 (see the chart below). I took a little off the table before TSLA earnings results were reported and then the whole lock stock and barrel in the pre-market the morning after the earnings report (at $190.44 / share). According to Investor’s Business Daily: TSLA stock is the second-worst performer in the S&P 500 (SPX) in 2024, behind only Archer Daniels Midland (ADM). TSLA stood at $183.25 at the end of last week’s trading. I think it has more room to go lower.
Source: Telemet
So why sell TSLA now? Why not add? Here are my thoughts:
- TSLA has been slashing prices on its vehicles. This would imply that i) margins will continue to decline and ii) TSLA has to sell more cars to maintain sales results. Taken together, this is not a position you want to be in. As it now stands, cars in the channel at dealers are piling up and winter weather does not help sales.
- Earnings results released last Wednesday of 71 cents and revenue of $25.17 billion failed to meet consensus Wall Street expectations.
- Federal Government tax credits which were essentially subsidies for TSLA vehicles ended in 2021.
- I am skeptical about the new TSLA Cybertruck as are many people in the financial industry. Pickup truck owners would sooner get a Dodge Ram or Ford F-150 EV vehicle. Recently, I parked behind a Rivian (RIVN) pick-up truck and thought it was ugly. RIVN stock is a big turd as well. I am still seeking a red and black Chevy El Camino. If you have any leads on one, please let me know.
- Musk’s behavior has become even more erratic than in the past. That was evident on the most recent earnings conferment call. My guess is that his drug use is likely increasing. Also, his focus on “X” the company formerly known as Twitter and SpaceX may be diverting too much time away from TSLA.
- Analysts are downgrading the company’s earnings estimates and stock price target. I expect further downgrades.
- TSLA relies on sales in China, however that economy is dismal and likely to get worse.
- TSLA sells at about 61 times current earnings expectations (which should be cut further) and if you believe the current 2025 earnings estimates, TSLA earnings growth rate is 19% per annum. Hence that stock is trading at 3.2 PEG (price earnings to growth). TSLA stock would have to halve before I would even consider a repurchase. For comparative purposes, General Motors (GM) trades at a PE of 4.13 and Ford (F) at a PE of 5.06.
- The automobile business is about as lucrative as the airline business. You can trade those companies’ stocks, but they are not appropriate for long-term growth holding.
- Finally, just a few days ago, TSLA owners were unable to charge their vehicles during a winter freeze. Just see what recently occurred in Chicago.
We put most of Wednesday's TSLA sales proceeds into Netflix (NFLX). NFLX was Carly’s first stock pick since getting licensed. So, I won’t steal her thunder and expect that she will pen another installment of “My Two Cents” to discuss why she picked NFLX.
As an aside, I shaved off some more Apple (AAPL) but it remains a core holding in several of our strategies.
Finally, what a juxtaposition, Taylor Swift was looking up at the stage when the Kansas City Chiefs were receiving the Lamar Hunt trophy for capturing the AFC championship when Travis Kelce was on the stage.
Related: My Gut Feeling for 2024