Tesla’s Bearish Pitch 🚗

by 10 Jan, 2020

Tesla’s Bearish Pitch

Tesla has delivered an almighty electric shock to its naysayers so far, but bears don’t back down easily. Some short-sellers still remain positioned to profit from a Tesla downfall, so let’s hear them out. This is the glass half empty pitch for Elon Musk’s electric car (EV) company.

Many bearish investors concede that Tesla’s product is pretty neat, and the task before Elon Musk is to park it in as many driveways as possible. Specifically, ahead of other EV offerings from resurgent, more well-established car brands. Volume! Volume! Volume!

It may not happen on Wall Street’s quarterly schedule, but economies of scale from this effort are supposed to flatten the cost of car-making longer term. With the help of “efficiencies,” Tesla hopes to widen margins and turn a profit for investors. Solid plan, right? 

The main key performance indicator (KPI) for progress in this regard has been delivery numbers. The good news is that Tesla’s delivery numbers are hitting record highs, and manufacturing costs are indeed on the decline!

The bad news is that some analysts are looking underneath the bonnet and raising red flags. Sure, manufacturing costs are falling, but so is the average selling price (ASP) for each vehicle. Tesla is no closer to profitability as a result. What’s going on?

Bears reckon that in order to drive volume, orders, and deliveries, Musk is cutting the price of his consumer product. When you cut the price of a consumer product, it’s very hard to undo that price cut and so some are calling Tesla’s growth fake.

The bullish retort is that Tesla has a sterling brand and the pricing power to indeed hike prices again in the future. Failing that, the company won’t make a profit on the cars and instead focus on ancillaries like servicing and Super Charge stations.

There are no guarantees, however, especially given competition now in the EV space. If Musk makes it work and the stock price rockets, he’s a genius. If shares plummet, the buck stops with him. The company is a hard pass for many who see this bear case as realistic. What do you make of it?

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