Our Tesla Stock Prediction In 2019 (Buy or Sell?)
Tesla (NSDQ: TSLA) is one of the most hyped “story stocks” on Wall Street.
You can’t turn on CNBC, Fox Business News, Bloomberg, or any other financial news channel without hearing the talking heads chatter away about electric vehicle (EV) maker Tesla.
Everyone seems to have an opinion about Tesla. The company has captured the hearts — and wallets — of investors. But what’s the straight story?
In this edition of Investing Daily, you’ll learn:
- What makes Tesla’s stock so fascinating (and controversial).
- Tesla’s performance In 2017/2018.
- Should you buy Tesla?
- Should you sell Tesla?
- And our final forecast and outlook for Tesla in 2019.
Let’s get into it!
What’s This Company Called “Tesla,” Anyway?
Based in Palo Alto, California, Tesla specializes in making electric vehicles (EVs) and, through its SolarCity subsidiary, solar panel manufacturing.
With a market cap of of around $50 billion, Tesla operates several production and assembly plants. The company’s main vehicle manufacturing facility is located in Fremont, California.
Tesla sells the Model S, Model X and Model 3 EVs, Powerwall and Powerpack batteries, solar panels, and related products.
The company’s name was taken from the legendary Nikola Tesla, a giant in the field of physics. Billionaire and celebrity entrepreneur Elon Musk is co-founder and CEO of Tesla.
How Has Tesla Stock Performed?
Tesla stock has been extremely volatile, even for a technology stock. Shares have sharply risen or fallen according to news events and operational results. Since the company was founded in 2003, investors have endured a roller-coaster ride.
However, even though Tesla has made investors dizzy with volatility and uncertainty, it has also made early investors rich.
What Is Tesla Stock History?
Tesla made its stock market debut in 2010, with an initial public offering (IPO) priced at $17 per share. Since then, the stock has gained about 1,700%, compared to a gain of about 150% for the S&P 500.
How Has Tesla Performed In 2017/2018?
The overall bull market, combined with the technology sector boom, provided powerful tailwinds for Tesla in 2017.
In 2017, TSLA shares gained 36%, compared to a gain of 18.72% for the S&P 500. But 2018 has been less kind. Tesla has fallen a bit but isn’t far off from the S&P as a whole. In both years, Tesla stock has endured wild up-and-down swings.
Who Are Tesla’s Rivals?
The EV market is growing fast around the world, attracting the major automotive players.
The following chart depicts the size of the global market for EVs in 2012 and 2019 (in billion U.S. dollars):
Automotive manufacturing is capital intensive and characterized by high barriers to entry. Tesla is going toe-to-toe with auto making behemoths that are plowing considerable research and development into the EV dream.
Environmentalists see cleaner EVs as salvation for the planet and an effective way to reduce the carbon footprint of transportation, to help fight global warming. Investors see the opportunity to invest relatively early in a breakthrough technology that will soon become the money-making status quo.
Tesla is up against heavy-hitters that benefit from brand name recognition, vast economies of scale, and global reach.
Nissan Motor (OTC: NSANY)
Based in Japan, Nissan is regarded as a top Tesla competitor. Nissan is the largest manufacturer of EVs across the globe; on average it sells about 275,000 EVs per year. Nissan’s EV main offering is the Leaf, a compact five-door hatchback.
Ford Motor (NYSE: F)
This Detroit stalwart is focusing on gasoline/electric hybrids, such as its Fusion and C-Max models. These models are gaining market share and they’re proving quite popular with consumers who want a foot in both gas- and electric-powered worlds.Whether they’re operating in electric mode, gas mode or a combination of both, these vehicles optimize efficiency. And simplicity. The plug-in hybrid vehicles can be recharged in under three hours using a 240-volt outlet. When you drive a Ford hybrid or plug-in hybrid, you’ll still stop at gas stations. But maybe just for coffee.
General Motors (NYSE: GM)
GM makes the popular Chevrolet Bolt, an all-electric subcompact hatchback marketed by Chevrolet and developed and manufactured in partnership with South Korea-based LG Corp. (OTC: LGEAF).
NIO (NYSE: NIO)
NIO, a China-based EV startup, debuted in 2018 on the New York Stock Exchange.
Among several so-called “Tesla killers” planning to go public, NIO originally hoped to raise $3 billion from its initial public offering; it ended up yielding $1 billion.
It’s too soon to say whether NIO will succeed over the long haul, but the potential market for EVs in China alone is vast.
Investors should keep an eye on NIO, especially since the Chinese government has made renewable energy and advanced automotive technology major priorities.
Will Tesla Go Up In 2019 (Should You Buy)?
Let’s examine both the bull and bear cases for Tesla. First, the optimistic view.
With a forward price-to-earnings (P/E) ratio around 50, Tesla stock is pricey by anyone’s standards.
The bullish argument is simple. Elon Musk (who also founded the rocket firm SpaceX) is a visionary and EVs are the wave of the future. Tesla is laying the groundwork to dominate that future. The company name Tesla has become synonymous with EVs.
But there’s more to the bull case than just cars…
Read Also: Our Amazon Prediction For 2019
Tesla and “The New Gasoline”
Tesla also is devoting considerable resources to lithium mining and battery production. The potential here is huge. The strategists at Goldman Sachs (NYSE: GS) call lithium “the new gasoline.”
Lithium is a lightweight, silver-white metal that’s used to create heat-resistant glass, ceramics and lubricants. It’s used in a host of industrial applications and vital to the production of steel and aluminum. In the field of drug treatment, it’s widely used to alleviate depression and bi-polar disorder.
However, the biggest growth driver for lithium is accelerating demand for lithium-ion batteries that are used to power EVs and store renewable energy such as solar.
According to market research firm IHS Markit, lithium-ion batteries represent the fastest-growing form of energy storage and will be a part of about 80% of storage installations by 2025.
Elon Musk has indicated that he seeks a lithium supply to fill enough batteries to power 500,000 of the company’s EVs per year by 2020.
Tesla jumped ahead of the competition by constructing its own lithium battery gigafactory that’s producing about 35 gigawatts of lithium batteries per year.
Tesla broke ground on the gigafactory in 2014 outside Sparks, Nevada, and the facility officially launched battery cell production in January 2017. Tesla purposely placed the factory smack dab in a state that’s a vast source of in-ground lithium.
Credit Suisse (NYSE: CS) reports that demand for lithium could outstrip supply in 2020 by 25%.
Tesla already is trying to corner the lithium market. This bold move could pay off big in 2019 and beyond. But will it be enough to outweigh the negatives that continue to bedevil Tesla?
Will Tesla Go Down In 2019 (Should You Sell)?
Then there’s the bear case. Frankly, as much as we’d like to believe in Musk’s audacious vision, the headwinds appear too formidable.
Sure, Tesla’s share price has soared. The short-sellers have lost their shirts. The bulls are rightfully patting themselves on the back. But driving the stock higher have been hopes for the future, despite consistently terrible (and deteriorating) financials. Markets can remain irrational for a very long time, but the fundamentals eventually have the final say.
The company recorded its first profit in two years, in the third quarter of 2018, a milestone that cheered investors. Can the company sustain this performance? It’s doubtful. For most of its history, the company has produced a sea of red ink.
Hope is a poor investment strategy. Meanwhile, the company is awash in debt.
Tesla’s revenue is expected to grow from $4 billion in 2015 to about $20 billion in 2018, but the company is burning through cash rapidly as it lavishly spends to ramp-up production.
Tesla spent $4 billion in capital expenditures over the last 12 months, which brings the total spend to more than $9.1 billion since 2013.
Problem is, the company doesn’t produce sufficient profits to fund those expenditures, compelling it to finance this spending by issuing stock and taking on debt.
Total debt stands at about $13.4 billion; the total debt-to-equity ratio is a whopping 254.64. Total cash on hand is a mere $2.2 billion. The company consistently misses production quotas and struggles with technological glitches, as well as fatal accidents during test drives.
According to Goldman Sachs (NYSE: GS), Tesla will require $10.5 billion in fresh capital through 2020 to continue operations and meet its growth targets. That’s a big number.
Tesla and the Cult of Personality
Then there’s Mr. Musk himself. His flamboyant personality is the main factor keeping the cash-strapped company afloat.
But Musk also is the walking embodiment of “headline risk.” In 2018, Musk and the Securities and Exchange Commission (SEC) reached a settlement stemming from Musk’s tweets about taking Tesla private.
Under the agreement with the SEC, Musk and the company each paid a $20 million penalty, and Musk is barred from serving as chairman for at least three years. The agency retracted its threat to oust him as chief executive officer, which allows Musk to still call the shots at Tesla.
Musk posted a series of tweets in August 2018 suggesting that he would take debt-ridden Tesla private. In the tweets, Musk wrote “funding secured” and “investor support confirmed” for a deal. Tesla shares jumped.
Musk eventually abandoned the plan and TSLA shares tanked. That’s when the SEC stepped in.
The SEC filed charges against Musk related to the take-private tweets, stating: “Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source.”
Musk settled with the SEC and ended up accepting penalties that were harsher than those originally proposed by the agency. Advisers persuaded Musk that a drawn-out court battle was in no one’s interest.
The settlement was announced only two days after the charges were filed. In addition to paying the monetary civil penalty, Tesla also was compelled to add two independent directors to the company board and Musk was forced to step down as chairman for three years.
Musk may be a billionaire, but $20 million is real money. And the tussle with the SEC was a bad omen.
Tesla’s Musk Flies High…Really High
It’s not just the SEC that doubts Musk’s managerial fitness. During a live podcast interview in 2018, Musk lit up a marijuana joint and proceeded to puff away in public. Investors were not amused and the stock plunged.
You can watch Musk’s antics in this video:
Overall Tesla Forecast And Prediction For 2019
To be sure, Elon Musk is a genius and his attempts to bring EVs to the masses are laudable. However, any company that’s sustained by a cult of personality is quite dangerous from an investment standpoint, especially if that personality is the mercurial Musk.
Fierce competition from well-funded automakers, chronic production delays and glitches, massive debt, shaky profits, constant C-suite defections, and an unpredictable non-conformist as CEO all spell future trouble for Tesla stock.
In 2019, the bull stock market is likely to end and the long-awaited economic downturn will kick in. Interest rates are rising and inflation is gaining steam. Consumer demand for such high-end products as EVs is likely to fall, a scenario that indebted Tesla is in a poor position to handle.
If you own TSLA stock, consider selling it and pocketing your gains. Now’s the time to pare back on momentum stocks in general, especially in the technology sector. If you don’t own TSLA shares, you should resist the Siren’s Call of Elon Musk. Tesla faces a day of reckoning.
Read Also: Our 2019 Stock Prediction For Nvidia
John Persinos is the managing editor of Investing Daily.