When going on vacation for ten days, I knew there would be plenty of Tesla (TSLA) news to break that I didn't have time to discuss. That's perfectly fine, because you can see a list of headlines below. Today, I'm here to do what I do best, and that's discuss a number of trends for the company that continue to worsen. Unfortunately, for investors, things are not as beautiful as my trip was, with shares losing nearly $30 while I was gone.
(I traveled almost all of the Blue Ridge Parkway, and the number of Tesla vehicles I saw matched the number of quarterly GAAP profits in recent years)
Just in case you were away recently as well, here's a quick list of the news that broke regarding the name:
- Analyst coverage: Goldman Sachs detailed large capital needs, while Morgan Stanley slashed its price target and margin forecast.
- Executive departures: The list keeps growing, including Doug Field's leave of absence, the director of field performance engineering, and two executives from the energy unit.
- Another vehicle crash is being investigated, this one highlighting another case of a driver overly depending on Autopilot.
- Factory shutdown news: While this isn't totally new, it likely means that we'll see more volatility in VIN registrations and the Bloomberg model.
Just after I returned home, Tesla CEO Elon Musk decided to reveal some new specs regarding the Model 3, this time regarding the dual motor all-wheel drive and performance versions. While this will likely mean more deposit holders can now configure to the trims they were waiting for, they also will need to have their wallets ready for some sticker shock. The high end version will cost $78,000 even before adding Autopilot.
There obviously will be some demand for these newly available versions, although it likely is limited when exceeding base Model S prices. Still, getting $2,500 a pop for a configuration will help with Tesla's capital needs. Unfortunately, for consumers, US treasury rates like the 5-year shown below have jumped recently, meaning auto loan rates will rise as well. This will only make the Model 3 even more expensive, especially with no lease option yet. Look for Tesla to increase its loan rates even more when we get to Q3, in addition to the multiple increases already seen in the past few quarters.
(Source: cnbc.com)
When we take into account interest rate hikes and the new versions coming out, it just adds to the wait for those that think a $35,000 car before incentives is headed their way anytime soon. Don't forget that management previously called the Model 3 a mass market vehicle, but in the latest investor letter called it a "mid-size premium sedan." The company's comparisons to higher-end vehicles show this is not a vehicle aimed at the masses, which means long-term demand will likely be lower than previously hoped.
Another item that will likely hurt Tesla during Q2 is the rise in the US dollar. After a few quarters of weakness, the greenback has had a strong quarter as seen in the chart below. When looking at sales done in the Euro countries, or perhaps a strong market like Norway, the numbers will be negatively impacted when translated back to US dollars, likely pressuring the top line and average selling prices for the period.
(Source: cnbc.com)
Let's also not ignore the commodity space, because Tesla is likely going to face major headwinds for its battery costs in the coming years. My readers know that I've detailed the surge in cobalt since the Model 3 was unveiled, from $10 to $40 plus a pound, but we also should take a look at nickel, an even more important battery metal. As seen below, nickel prices are up about 50% over the past year. All of these extra costs will likely hit Tesla moving forward, and management did acknowledge commodity prices hurting margins in the latest investor letter.
(Source: infomine nickel price chart)
So while I had a very nice vacation, things at Tesla seem to have gone in the wrong direction. More executives have fled, another Autopilot crash is being investigated, and two notable analysts issued very negative notes. At the same time, Tesla is launching even more expensive versions of the Model 3, a shot at the mass market consumer especially as auto loan rates rise. Shares have not done well in recent weeks, and the situation might only get worse if these headwinds continue to grow.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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