I love Tesla, and I hate Tesla. I, like most, have been enamored with CEO Elon Musk’s vision to transform the automobile industry. And the actual autos that his company has produced live up to the hype. I believe that he is the front-runner to be the most influential corporate leader since Steve Jobs. My hate has been directed towards the stock recently, not the company.
We have written about the company and the stock on many occasions over the last couple years, and have gone to great pains to differentiate between our feelings for the two, because they are two very different animals. If not a publicly traded entity sporting a $24 billion market cap, Tesla would much more likely be viewed more like Steve Jobs’ NeXT computer company (that he launched with some big financial backers after he was fired from Apple in the mid 1980s.) Musk would be able to disclose to the public what he wanted to (about the PRODUCTS) when he wanted without having to make quarterly public disclosures about finances that face massive scrutiny from investors, Wall Street analysts and the financial press. Obviously there are many ways to tap the capital markets for cash, both public and private, but when you consider some of the private valuations for companies like Uber, Xiaomi and Snapchat (oh and SpaceX, Musk’s other project) there would be no shortage of options to fund Tesla’s plan. But I think Elon Musk’s long term vision would be easier without being in the pedestrian quarter to quarter earnings rat race as Tesla transitions from making luxury electric cars moving into the soon to be very crowded mass market segment.
No reason arguing this point, what’s done is done. Musk has a stock to worry about, not just changing the world. And I think it is important to note (again) that while the stock’s 35% decline from its all time high made in September speaks to a cooling in the investment community’s infatuation with the stock, the lack of any ability for the stock to stage a meaningful rally is causing an increasingly nasty technical set up that could result in a sort of lights out gap to $150. Regular readers will recognize the infamous Triangle of Death technical pattern that’s been forming over the last year, some of you real technicians merely refer to it as a head and shoulders top:
I have probably spent about 2 minutes every trading day of 2015 staring at this chart and have been shocked how it seemingly gets worse every time I look. Yeah there have been some counter-trend rallies, but all have failed at the downtrend. If you are a short term trader I guess you could merely be patient and short every time it bounces back to the downtrend, and use tight stops, or define your risk with options.
Given the waning momentum and what appears to be an increasingly crowded competitive landscape, I am more inclined to sell rallies than buy dips. Obviously the bear case is well known and the stock’s nearly 30% short interest reflects investor skepticism.
I just started reading Becoming Steve Jobs by Brent Schlender which spends most of the first half of the book detailing Jobs’ failures in his 20s and 30s as a difficult manager even though he was a clear visionary. This part of Jobs’ legacy seems like a distant memory given the tremendous success of Apple over the last decade, but it is hard to consider the possibility that Elon Musk may at the moment be just a tad stretched given his involvement in Tesla, SpaceX and SolarCity, and maybe just maybe a good part of the perceived genius running these amazingly ambitious endeavors (he is SCTY’s Chairman) has been due in large part to the massive inflation of risk assets since the end of the financial crisis which has been a direct result of large capital pools desperately seeking for returns fueled by the easy money policies of central banks the world over.
An even bigger question for investors and traders in general is… Could the changing fortunes for Musk led companies possibly signal a massive sea change in investor’s appetite for risk?