Up until fairly recently, I used to be a big fan of Elon Musk and his vaunted company Tesla (NASDAQ:TSLA). However, a series of unnecessary controversies and unforced errors made me change my opinion. Granted, I still think the man is a genius. However, I wanted to avoid the coming train wreck in TSLA stock.
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And man, was that ever the right decision. Year-to-date, Tesla stock is down more than 28%. Of course, this figure includes the effect of June and July’s sympathy rally in TSLA. Without it, shares would have shed closer to 40%.
For the bears, I say “never say never.” In my opinion, TSLA stock is on the verge of falling into an overwhelmingly negative ecosystem. From internal troubles to external headwinds, Tesla is about to face an unprecedented series of challenges.
Here are three reasons to avoid Tesla stock (unless you want to short it):
Recession Cuts Two Ways for TSLA Stock
On Wednesday, the Dow Jones Industrial Average suffered an 800-point drop, the worst day of 2019 so far. Since no publicly traded company operates in a vacuum, virtually all stocks tanked. Even companies like UnitedHealth Group (NYSE:UNH) which has no exposure in China dipped severely. This drew fears of a coming recession.
Logically, then, it wasn’t a good day for Tesla stock, which does have exposure in China. In fact, before the U.S.-China trade war escalated in the past few weeks, TSLA was making an aggressive push toward dominating the electric vehicle market share in China.
You can say those plans got scuttled.
But that’s only the headline headwind. The other swing of the blade comes from a possible recession’s associated risks. Primarily, I’m talking about oil prices. During the midweek session, the international oil benchmark Brent crude dropped more than 3% on weak global economic data.
That’s a massive problem for TSLA stock because it takes away the EV’s principal selling point: eliminating pain at the pump.
Thus, if we head into a recession, don’t expect consumers to jump on EVs. By the way, Tesla’s cars aren’t that reliable, taking away another selling point and adding troubles to TSLA stock.
Tesla Stock Could Get ‘ICE-d’
I believe most economists agree that we’re headed toward at least a market correction, if not a recession. Given that we’re on the longest bull market ever, I think that’s a reasonable forecast.
But let’s say that we don’t have a recession for whatever reason. Maybe President Donald Trump and Chinese President Xi Jinping engage in a “Titanic”-like bromance. Or maybe the Federal Reserve finally found the magic formula to quantitative easing.
Would an extension of the bull market save Tesla stock? I highly doubt it because of the competition.
As I argued last month, we’re living in the golden age of the internal combustion engine, or “ICE” for short. While fossil-fueled cars are archaic compared to EVs, they offer astounding conveniences and performance at a great price.
Previously, I used the example of a Toyota’s (NYSE:TM) popular Camry: It’s practical, sporty, reliable and affordable. Also, I think it’s good looking. But the point is, modern ICE cars are combining so many attributes under one umbrella. On the other hand, because EVs represent relatively new technologies, they lack ICE cars’ consumer friendliness.
As an aside, consider General Motors’ (NYSE:GM) 2020 Corvette. A mid-engine beast that resembles an Italian exotic, GM made the shocking announcement of selling their flagship for only $60,000. Who’d buy an EV under such an aggressive pricing environment?
The innovation in ICE cars is bad news for TSLA stock.
Same Old Tesla
Finally, let’s discuss the third reason to avoid TSLA stock: We’re still dealing with the same old Tesla. Specifically, the company loves to overpromise and underdeliver.
This has been a criticism that has dogged the company for years. Usually, this has revolved around car deliveries. But recently, the bearish assessment extends to product features, such as automated driving.
In the past, Wall Street gave Tesla stock substantial leeway. After all, EVs represented an exciting new technology. And while traditional automakers forwarded ugly or otherwise uninspiring hybrids, Tesla cars were undeniably gorgeous. Stated differently, Tesla did EVs right.
But the honeymoon phase is over. The Street wants to see hard numbers to back up the premium in TSLA stock. They also want Musk to stop making unnecessary errors and start taking his business seriously.
Of course, some of the bullish arguments rest on the company doing exactly that. But for me, I’m going to read between the lines.
You’ve got to wonder what’s going on at Tesla. Executives at these types of organizations are overpaid and underworked. So it must take something extraordinary for them to give up such great money. Whatever the case, it’s probably not conducive for TSLA stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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