Stock watch: Tesla


At close of trade on November 10, 2017, the share price is US$303.

Tesla Tesla Inc. (NASDAQ: TLSA) is at a very interesting stage. Last week, its share price fell by nearly 20%. Still, it remains 50% higher than it was at the start of 2017.  Here is the chart of the price:

Tesla price

What happened last week? The main thing is that Volvo made an announcement:


To an investor in Tesla, I expect this will be something of a concern.  Firstly, Tesla is not in a strong financial position. It has yet to make a profit and remains cash flow negative at the operating level:

op inc

tesla cash

Secondly, what inherent value, competitive advantage or technological know how does Tesla have relative to its potential rivals? To date, the appeal of Tesla to investors is that of first mover: it was the first to seriously attempt to build a mass market electric only vehicle. However, the technology of lithium ion batteries and electric motors is not held just by Tesla. The big car makers like Ford, BMW, GM, Toyota all have experimented but played more of a wait and see game. Volvo has now jumped; perhaps the others will follow.

What Volvo does have that Tesla does not is a long history of car design, manufacturing, innovation, repair, sales, marketing, servicing and spare parts. Likewise for GM, Ford, Toyota etc. Those makers have a network of service agents, spare parts and know how around the world. Faith in brand is highly valuable but is developed over time. Ask yourself a simple hypothetical question: you are driving from Sydney to Melbourne and your car breaks down at 5pm somewhere south of Albury-Wodonga. Would you rather it be a Tesla or a Toyota?

What would concern me most about an investment in Tesla Inc would be the fact that even after 5 years of high end advertising and virtually no competition, it has still not made an operating profit. In fact, operating income is getting worse. And times are about to get really tough for Tesla.