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Editor's Note: Last Tuesday, shortly after noon Eastern, we got an email from Michael: "As I researched Tesla Inc. following its Aug. 2 earnings call, my gut told me something was wrong, and not to believe the hype that a turnaround was suddenly imminent. So I spent the weekend doing a deep dive on Tesla, sorting through the financials, looking at the bigger industry, and going over the stock's charts. The results led me to type up this sell report I've attached. Run it next chance you get." So far, so normal. Then, literally as we began reading that attachment, Elon Musk's now-infamous tweet hit, at 12:48 p.m.: "Am considering taking Tesla private at $420. Funding secured." Not long after that, the Nasdaq halted trading on Tesla – and Musk, his company, and his tweets have been at the top of the news ever since. Instead of getting Michael to rewrite his report, we've decided to run it as-is. Here's Michael…
On Aug. 2, the bulls got their sweet revenge.
Shares of Tesla Inc. (Nasdaq: TSLA) leapt 16% to their highest close in nearly five years following its latest earnings report.
Turns out, short sellers worried about production snafus for the new Model 3 and other concerns got hammered, despite paper losses of nearly $1.7 billion.
You'd think a longtime Tesla enthusiast like me would be happy.
Just the opposite is true.
In fact, I believe now is the time to sell Tesla and use the most recent rally to take whatever profits you can.
Let me be clear: I didn't come to this conclusion lightly. You see, I have the highest regard for CEO and founder Elon Musk. I believe he's one of the great technology geniuses of our time.
But the company is facing a host of challenges at a moment when the stock has been on a roller-coaster ride.
With that in mind, let's walk through the reasons why I now have Tesla listed as a "Sell."
When a Mea Culpa Is Not Enough
Now then, on Aug. 2, there were two good reasons for Tesla shareholders to be happy.
- Musk promised the company would be profitable this year.
- Musk apologized to analysts on the quarterly earnings conference call.
See, during the previous quarter's earnings call, he had been snide and insulting to them. Those comments soon became the talk of Wall Street and the financial media, where pundits started raising questions about Musk's leadership skills, quickly casting a pall over the stock.
But the mea culpa and promise of earnings ahead were enough to add billions to Tesla's market value.
But here's the thing: This short-term sugar rush doesn't change the challenges the company faces.
Not at all.
And these challenges – when you add them all together – are why I think Tesla holders should take profits and sell the stock.
Tesla Challenge No. 1: Crowded Landscape
Yes, Musk has created one of the great cars of all time.
He's built a high-quality, extended-range, premium electric vehicle (EV). And he caught the rest of the auto industry off-guard.
Right now, his firm has the EV market mostly to itself, and Tesla is enjoying impressive sales growth. The firm is on pace to build around 208,000 cars this year, according to KeyBank, and that figure may swell to 462,000 by 2020.
About 80% of those sales will come from Tesla's least-profitable car, the Model 3.
But this market is about to swing wide open. No doubt Musk is keeping an eye on the calendar as a tidal wave of new premium EVs will be coming to market within the next 24 months.
Other premium automakers, especially German ones, have been working hard behind the scenes to roll out a range of "Tesla killers." Consumers who have been thinking about buying a Tesla will soon hear about a lot more options to consider before buying.
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For those in search of SUVs, for example, Jaguar is rolling out the I-PACE next month. It matches up almost spec-for-spec with Tesla's Model X – and it will be up to $10,000 cheaper.
Porsche SE aims to steal Tesla's thunder in the sports car department with its new all-electric Mission E.
Meanwhile, Tesla's high-end sedan, the Model S, could begin to struggle once it sees true competition. Mercedes-Benz, for example, will offer electric versions of all its vehicles by 2022.
And we haven't even touched on the premium EV plans from Audi, Volvo, BMW, and others. Each one of these will pull out all the stops to capture a big slice of Tesla's market.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.