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Buy Tesla Stock if TSLA Hooks Up With Volkswagen

Larry Ramer

Tesla (NASDAQ:TSLA) and Volkswagen (OTCMKTS:VLKAF) would make a great couple. If the companies do get together, investors should buy TSLA stock.

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Like a bachelor or bachelorette who is intellectually brilliant but has little common sense or everyday skills, TSLA has had tremendous achievements but has struggled with more rote tasks. Elon Musk and his crew have developed electric cars that are technologically advanced, can run on one charge for a long time and appeal to many people. Using these attributes, TSLA, largely singlehandedly, made electric vehicles cool around the world.

But when it comes to more mundane tasks, what some call “blocking and tackling,” the company has been pretty dismal.

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In a column published back in January 2018, I pointed out that problem. I noted that TSLA was having problems producing enough vehicles to meet demand. I warned that TSLA could lose its first-mover advantage unless it solved the issue. The solution I recommended was partnering with a large auto producer, and I wrote that Ford (NYSE:F) would be an excellent partner for TSLA. I told investors to sell Tesla stock unless the company paired up with a large automaker.

Fast forward to mid-2019. Of course, TSLA still hasn’t made a partnership deal. And according to a June 2019 Fox Business article, “Tesla continues to struggle to scale production.” Moreover, Tesla is also struggling to increase sales in the U.S. while expanding in China. Plus Fox Business’s Joe Williams writes that poor reviews and manufacturing issues have “plagued” its new Model 3.

If that wasn’t enough, Elon Musk has also (just since January 2018) had problems communicating with shareholders, staying out of trouble with the Securities and Exchange Commission, deciding on a sales strategy, and, most importantly, maintaining profitability.

Unfortunately for the long-time owners of Tesla stock, Wall Street has caught onto Tesla’s problems. In 2019, when the stock market and most tech stocks have rallied, Tesla stock has tumbled over 35%. And since January 2018, TSLA stock has sunk a staggering 30%.

It Won’t Get Easier for TSLA

No one should expect the road to get easier for TSLA or Tesla stock. As I pointed out last month, the federal tax credit that buyers of Tesla’s vehicles receive fell by 50% to just $1,875 on July 1. The credit is on pace to be eliminated completely by 2020. That means TSLA is at a major disadvantage compared to EV makers whose vehicles still qualify for the full tax credit.

Not surprisingly Bernstein’s Toni Sacconaghi warned that TSLA’s competition in the luxury segment was intensifying. Specifically, according to Barron’s, the analyst stated that the sales of Tesla’s higher-end Model S and Model X are “deteriorating” due to competition from  Jaguar and Audi. India’s Tata Motors (NYSE:TTM) owns Jaguar, while Volkswagen owns Audi.

Speaking of Volkswagen, on Aug. 22, a German business publication reported that the German automaker was interested in buying a stake in TSLA. Volkswagen denied the report.

If the deal goes through, it would be great news for TSLA and the owners of Tesla stock. Although Volkswagen has its share of problems, including its emission scandal and a high rate of recalls,  it’s nonetheless the sort of huge, successful automaker that can fix most of Tesla’s “blocking and tackling” issues.

In 2018, the German automaker set a delivery record, driven partly by growth in the U.S. and Europe. Its new products have largely been successful and it has experience with many different types of autos, including its lower-end Volkswagen brand models and its high-end Audi models. Both Volkswagen and Audi models have been fairly popular in the U.S. Its joint ventures with China could help TSLA in that market.

Would the Deal Make Sense?

Most of all, Volkswagen’s executives and technical experts can give Elon Musk advice about how to effectively increase Tesla’s production as well as on how to sell and build automobiles. And the money that the highly indebted, unprofitable TSLA would get from Volkswagen wouldn’t hurt either.

For its part, Volkswagen can benefit from Tesla’s wealth of experience in high tech and developing electric vehicles. It would be a great marriage, one that would likely propel both companies’ businesses and stocks much higher.

And since the deal would obviously benefit both companies, it could happen. Still, Volkswagen could balk at spending the money, and Elon Musk may not want to cede any of his control to outsiders.

But if Volkswagen does take a stake in  TSLA, I would buy Tesla stock. Until then, however, I would stay away.

As of this writing, Larry Ramer did not own shares of any of the aforementioned securities. 

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