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Has Tesla Jumped The Shark?

By Boris SchlossbergStock MarketsNov 08, 2021 06:04AM ET
www.investing.com/analysis/has-tesla-jumped-the-shark-200607625
Has Tesla Jumped The Shark?
By Boris Schlossberg   |  Nov 08, 2021 06:04AM ET
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Tesla’s shares were down more than -7% in early European trade today after Elon Musk polled his followers on Twitter if he should sell 10% of his stock. The typical Musk theatrics aside, the key question going forward for investors is whether Tesla (NASDAQ:TSLA) stock may have peaked for the near term, setting it up for a nasty correction.

The answer may be yes.

Over the past several months Tesla has become the ultimate meme stock soaring well past the $1000/share mark and a $1 Trillion valuation on smattering of positive news releases including better than expected latest quarterly numbers and a possible 100,000 order from Hertz (OTC:HTZZ) rental car. The news has sent the stock into a buying frenzy over the past several weeks, but the flows may soon turn viciously negative against Tesla bulls.

Like all meme stocks Tesla trades on hype and for now the stream of positive news may have run its course. The Hertz news has been priced in and any forward developments could only serve as a source of disappointment, especially if the formerly bankrupt Hertz is unable to come up with the financing capital for such a massive purchase, or Musk backtracks on the deal.

Several analysts have suggested that Musk may not want to have Tesla—which is a premium brand—exposed to all of the bumps and potholes of the rental car experience which could create a spate of negative publicity for the company, especially if there are any fatalities associated with the brand due to auto assist features or battery fires. Fatalities affect all car brands of course, but no car company attracts attention like Tesla and such PR power is a two edged sword. 

Tesla as a manufacturer is finally facing legitimate competition from new entrants and legacy ICE manufacturers. Recent reviews of the upcoming Rivian (NASDAQ:RIVN) pick-up truck and SUV, Ford (NYSE:F) Mach-e, as well as a slew of lesser known models from Korean makers have shown that many of the car manufacturers are beginning to catch up in design and battery production. In fact the performance gap between Tesla and the rest of the auto industry has narrowed markedly.

The company does enjoy a serious advantage in its supercharger network and that is its truly one great competitive edge, but it is likely to erode as other manufacturers begin to pour billions of dollars into fast reliable charging points without which the EV market will not gain any broad consumer traction.

For now, Tesla brand is effectively THE EV market and as long as the company maintains its unicorn status, the stock will continue to display its meme-like characteristics. However, over the next 12 months we may finally begin to see a broader adoption of EV technology and the moment Tesla becomes just another EV carmaker its stock will lose much of the magical luster.

Musk himself may be starting to realize this. His tweet poll is just the latest in a stream of manipulative messages that he has issued on the social platform over the years. Some analysts have pointed out that his true intentions to liquefy a portion of his net worth may have more to do with his pending 1.5 Billion tax bill and his aversion to borrowing further against his current stock position.   

Regardless of his motives, if Musk does begin to liquidate his holdings TSLA’s share price could quickly dip below $1000 as market makers pull their bids and the latest wave of retail buyers faces a steep mark to the market losses on their positions.

Although volatility in the stock is extremely high, the January 2022 1200/1000 put vertical could be the safest way to express a near term bearish view on the stock with downside clearly limited and the $1000 share target very much in view, if investor enthusiasm on Tesla begins to cool by year end. 

Has Tesla Jumped The Shark?
 

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Has Tesla Jumped The Shark?

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Comments (3)
Stan Godsky
Stan Godsky Nov 08, 2021 4:41PM ET
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Have you even considered the fact that Musk is forced to sell because his options are starting to expire and he will need to cough up roughly $15 billion in taxes?
Kent Collett
Kent Collett Nov 08, 2021 10:04AM ET
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I don't think consumers will think of Tesla as just another EV any more than they think of Lexus as just another automobile. They have a market niche, and it is growing.
Leighton Joy
Leighton Joy Nov 08, 2021 9:12AM ET
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Perfect example of opinion.
 
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