Warren Calls the EV (& Self-Driving Truck) Hyper Growth Bluff With Old Style Purchase

Tesla: Elon's Leaked Email on Dressing Piggy Up For the Prom

Equity Analyst, TMT & Energy Specialist

HL Tan

Equity Bottom-Up

Much as we adore the revolutionary car and Musk's bold vision, Tesla is poised for extended share price weakness. In our view, Tesla's stock has not yet priced in the following negatives.<ol><li>Impending disappointments surrounding Tesla's mass-market Model 3 (Model ≡) launch in 2017</li><li>Worsening cash-burn post SolarCity acquisition</li><li>Exacerbating FCF woes, which could curb quality, targets and/or innovation</li></ol>Tesla solar-powered self-driving cars next...? We certainly embrace the eventual invention of a 'Tesla solar powered Autonomous car' and applaud Musk's ambitious visions for the unprecedented future....Buy the car, Sell the stock. However, until then, we see share price headwinds from SolarCity's cash burn, Model 3 execution risks, profitability concerns, low gasoline prices, rising competition and rich valuations to collectively hurt the stock in the medium term. We have an Underweight rating on Tesla due to fundamental concerns and instead, prefer dividend yielding auto stocks like General Motors, GM.Specific event-driven catalysts to watch for in the next few months. Tesla-SolarCity deal approvals, declining SolarCity share price leading to potential re-valuation of Tesla-SolarCity transaction, cash-burn post merger of SolarCity, 3Q results disappointment, Model S delivery shortfall, upcoming fundraising performance, announcements on SEC investigation/self-driving fatalities, Gigafactory ramp up delays, China sales weakness, R&amp;D or SG&amp;A cost overruns. Otherwise, the biggest negative driver would appear when Tesla Model 3 disappoints, in our view.P.S. China channel-check takeaways. My motivation to write on Tesla was ignited by the occurrence that I was staying opposite a perpetually empty Tesla showroom in Shanghai, China for the entire of last week. Tesla's sales inefficacy in China is widely known, China sales was down 33% yoy in 2015 (accounts for c.8% of Tesla's revenue). Meanwhile, Tesla has recently removed the word 'Autopilot' on its Chinese websites, after a highway crash in Beijing in August. We expect China sales weakness to persist into 2016/17, dragged by intense low-priced competition and attack of the clone (see picture below).

Much as we adore the revolutionary car and Musk's bold vision, Tesla is poised for extended share price weakness. In our view, Tesla's stock has not yet priced in the following negatives.Impending disappointments surrounding Tesla's mass-market Model 3 (Model ≡) launch in 2017Worsening cash-burn post SolarCity acquisitionExacerbating FCF woes, which could curb quality, targets and/or innovationTesla solar-powered self-driving cars next...? We certainly embrace the eventual invention of a 'Tesla solar powered Autonomous car' and applaud Musk's ambitious visions for the unprecedented future....Buy the car, Sell the stock. However, until then, we see share price headwinds from SolarCity's cash burn, Model 3 execution risks, profitability concerns, low gasoline prices, rising competition and rich valuations to collectively hurt the stock in the medium term. We have an Underweight rating on Tesla due to fundamental concerns and instead, prefer dividend yielding auto stocks like General Motors, GM.Specific event-driven catalysts to watch for in the next few months. Tesla-SolarCity deal approvals, declining SolarCity share price leading to potential re-valuation of Tesla-SolarCity transaction, cash-burn post merger of SolarCity, 3Q results disappointment, Model S delivery shortfall, upcoming fundraising performance, announcements on SEC investigation/self-driving fatalities, Gigafactory ramp up delays, China sales weakness, R&amp;D or SG&amp;A cost overruns. Otherwise, the biggest negative driver would appear when Tesla Model 3 disappoints, in our view.P.S. China channel-check takeaways. My motivation to write on Tesla was ignited by the occurrence that I was staying opposite a perpetually empty Tesla showroom in Shanghai, China for the entire of last week. Tesla's sales inefficacy in China is widely known, China sales was down 33% yoy in 2015 (accounts for c.8% of Tesla's revenue). Meanwhile, Tesla has recently removed the word 'Autopilot' on its Chinese websites, after a highway crash in Beijing in August. We expect China sales weakness to persist into 2016/17, dragged by intense low-priced competition and attack of the clone (see picture below). 

Tesla

Tesla - Buy the Car, Sell the Stock