TSLA is forming stage #4, though last week it attempted to recover the previous losses. The stock is still trading below 200-day MA and struggles to break up. It seems TSLA didn’t participate in the recent tech rally and that should be concerning. Musk is cutting prices of cars in order to attract more buyers, and this is proof that TSLA is just a very overpriced car maker, not a tech company. In order for TSLA to get more customers Musk must make more cars (or cut prices of those already built that are collecting dust in the manufacturer’s storages). Compare it to Apple (AAPL), for example. Apple is no longer a device manufacturer. It builds new phones, but it is not its primary business driver and revenue maker. AAPL now focuses on added value, added services. It has services that bring in revenue every day, every month, and every year without APPL doing anything. They just sit and collect cash. And now they have added new services, such as a credit card, and savings accounts. And they will hook up more customers and collect more fees. They have AppleCare, AppleOne, iCloud, Apple TV+, Apple Music, and the list goes on. And all these services tie customers firmly to Apple. And once you are hooked up, it is hard to switch to other providers. Switching to Samsung, or Google, for example, would mean a complicated transfer of all data from Apple to Google, transfer all your photos, music, files, videos, etc. And so, people stay. And pay hard earned cash. Look at Tesla on the other hand. What can this company offer to its customers? Just a car. It doesn’t matter that they are a leader in batteries, or self-driving cars (which still cannot drive on their own and keep crashing), or all the innovations Musk is claiming and announcing every year but failing to deliver (Cybertruck, Semitruck, etc.). It doesn’t matter that he is involved in Starlink (no revenue so far), solar roof (no revenue), Starship (no revenue), or whatever else. In order to bring in more customers, Musk must build more cars, build more Starlink devices, create more solar roof shingles, and create more rockets (and burn them when they fail). Without that, there is no scalability. You can’t sell Tesla “autopilots” to customers, if there are no Tesla cars to begin with. And on top of all this, Musk keeps infuriating its customer base. His customers are recruited from left wing bases, environmentalists, and people showing their status. They are not right-wing rednecks or conservatives. Conservatives despise electric cars. They mock drivers in Priuses and now in Tesla’s. They buy diesel trucks, not Teslas. And now Musk is aligning himself with people like DeSantis and infuriating left wing buyers.
That being said, I still think Tesla is just a car maker and its price will slide and align with other car makers like GM, or Ford. Its fair value is at $89 a share as of today, but as the market gets saturated, it will drop further down to $30-ish levels.
Tesla’s revenue is growing lately, though in 2023 Q1 we saw a drop. We need to see if that is going to be a continuous trend or just a dip. But if we look at what composes the revenue stream, it is mostly automotive sales and services only. There is no revenue stream that would be recuring independently from car sales.
Tesla took the biggest hit in free cash flow. The Q1 report indicated a drop of 80%!
The company’s EPS is also seeing declines:
One positive thing is that Tesla has a plenty of cash on hand and declining debt:
Tesla has about 3.5 bn outstanding shares and the company was diluting investors between 2010 and 2022. Since 2022, the number of shares remained the same.
The stock is still extremely overvalued. It is trading well above its $89.54 fair value. So, you can play it as aggressive and risky growth play. As a value investor, you should pass this opportunity.
The stock is now MODERATE SELL
This post was published in our newsletter to our subscribers on Sunday, May 28th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.
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