Friday, December 11, 2015

Tesla and EV

As of 8/8/2013, the stock price of TSLA is $155. The performance has been amazing 350% YTD.  It is a stock rocketing higher and higher. If you’re one of those lucky investors, protect your profit with stop orders.

Is TSLA a good investment?

From the fundamental metrics, it is not. The expected P/E is 150 and ROE is -360%. I seldom invest on stocks with P/E over 40. However, the outlook of the company is very rosy and the rising stock price indicates it could revolutionize the auto industry. It is possible, but do you want to bet on it?

My preference is “Buy low and sell high” as opposed to the current stock holders’ “Buy high and sell higher”.

Common mistakes of retail investors:

1.       Investing in a company is different from investing in a company’s products. Many Tesla owners own the company’s stock.

2.       Potential appreciation of a stock has nothing to do with its past performance. Will have another 300% return? Most likely, not. If the chance to decrease by $100 the same chance to increase by $50, I do not buy.

3.       When the trend (all three simple moving averages in indicates the trend is up), selling short is against you even if you have good argument. Do not swim against the tide especially in short term trade.

4.       Your profession (or expertise) could bring you bias in making investment decisions in a company related to your expertise. I had many high tech friends betting on internet stocks as they ‘knew’ better.

It is similar to your origin of nationality. When you were born in China, it does not mean you’re an expert in Chinese stocks.

The Business Model

Building super charge stations for the current owners to use free after a small initiation fee is a reversed business model of giving razors free but making money on the blade. The latter proves it works, but there are not too many beneficial precedents for the former model.

Tesla, the car

Tesla is an electric car. The current model is about $80,000 (not a typo) and the new model will be about half that. It still has similar problems as the Volt except with one simple drive train. The problems are:

1.       The service stations are built for free charging after an initial fee. Are they really free?  It will be great for the owners if the company will not be bankrupted from its shaky financial state. Same for sending mechanics to your house to fix your car. I hope they will prosper as I cheer them from my cheap seat.

2.       The charging range for the average owner is far worse than the range under ideal conditions and it will never be close to the range of cars using gas. Is the extra cost for larger battery worth it to an average driver?

3.       The other problem is some states do not (or will not) allow selling a car there without a dealership. It is costly to build a dealership network.

4.       My estimate is $10,000 rebate per car sold by Tesla from the government. Will the government subsidize them forever? It is not a big deal now as the number of cars they are selling is still small.

5.       It will appeal to folks driving a lot of miles in a year and/or when the gas price surges. I drive about 8,000 miles a year and it will never pay back for the extra cost ($80,000 vs. $23,000 for my Honda CR-V). Hope the $40,000 Tesla would make a big difference.

6.       Even if the company is making easy money in selling the carbon credit, it will still have big losses in the coming years.


Musk is very brilliant in pumping up the stock. He will sell it without the restrictions in the loan after he paid it back to DOE. The last owners of this stock could be the biggest losers if it heads south. I could be wrong in the timing but not wrong in the fundamentals of the company.

I sincerely wish he and his company will be successful and I were wrong. Only time can tell. For my own money, I prefer to buy low and sell high. It is just me. If you want to buy high and sell higher, you should protect your investment with stop order. Also, adjust the stop when it appreciates.

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