Dear Mr. Berko:
I think you are very wrong about Tesla Motors Inc. Management reported earnings of 20 cents a share for the quarter ending in June on revenues of $550 million. This year, sales are on track to exceed $2 billion, and next year, the company should earn between $2 and $3 a share. This stock is not a speculation as you wrote in your August column; it’s a fine investment. I bought 100 shares in March at $41 and have a 450 percent profit. I consider that a smart investment. Why don’t you like the car?
E.L., Springfield, Ill.
I like the Tesla (TSLA-$173.36) automobile. It has the turning radius of a dime. It has neck-breaking torque, gets 9.2 miles per watt and streaks from zero to 80 in 5.37 seconds. Its styling is timeless. The air conditioning system can give you frostbite. Little can go wrong with its engine, and it’s as quiet as ice. But a market capitalization of $23 billion suggests that investors are looking well beyond the $100,000 price of the sexy Model S. Investors are betting that TSLA will sell hundreds of thousands of cars in the $35,000 to $40,000 range by 2017, as CEO Elon Musk suggested in June. I hope he does but doubt he will. TSLA is a great-story stock, but though a story can move a stock higher, only results can keep it there.
I apologize for raining on your parade, but TSLA did not make a profit in the quarter ending in June. E.L., you can’t trust automobile executives today (they still lie about gas mileage), and I suppose you couldn’t trust them in earlier days, either. Two years ago, General Motors announced it had paid back its Troubled Asset Relief Program loan but didn’t tell the public that $49 billion of that loan was converted into GM stock. So today the Treasury Department needs to sell 272 million shares of GM stock at $72 to break even, but it’s trading at $35.74.
In July, Deepak Ahuja, TSLA’s chief financial officer and principal accounting officer, reported profits of 20 cents a share on revenues of $550 million, and that made headlines. Are you familiar with the old expression that “figures lie and liars figure”? Well, Deepak sort of decided the old-fashioned, generally accepted accounting principles that most investors hold inviolate aren’t worth a tinker’s damn today. Deepak and his boosters decided to look past the usual “lease accounting,” which applies to 36 percent of the cars delivered that quarter, and then decided to omit the cost of TSLA stock options (which are always expensed) and also decided to play footloose with various “one-time” financial costs. Well, Deepak’s sneaky adjustments produced a shadow profit of $24 million, or 20 cents a share. According to analysts who follow TSLA for several brokerages, the company reported a June loss of $30 million, or 26 cents a share. When they concern money, lies eventually become catastrophes, and you can’t unknock the door. Investors should certainly be mindful of that lie (sort of like waiting for the other shoe to drop) and in the future should take management’s comments with a pound of salt.
It’s bloody sad that you and perhaps 1,000 other investors rationally believe this company, with zero earnings, is worth $173 a share. This is the same investor stupidity, cupidity and ignorance that caused the stock market crash of 2008, which was responsible for the massive real estate collapse and the bursting commodity-price bubble. And it certainly appears that TSLA shares are on the bubble. Meanwhile, you’re fortunate to have a profit. If you wish to keep it, then I strongly urge you to sell your 100 shares. You need to know there’s very serious doubt that TSLA will be able to reduce battery costs sufficiently enough to produce a cheaper “Gen 3” car with a 200-mile range in the next three years. If the Gen 3 fails to deliver to a mass market and GM comes out with a competitive car in 2016-17, TSLA could easily fall to $6.