Why Tesla Is the Most Dangerous Stock on the Market Today
$Tesla Motors(TSLA)$ may be the most dangerous stock of the last 20 years for new investors.
That sounds provocative, but I will explain exactly why everyone looking for the “next Tesla” is doomed for failure.
If you made money on Tesla stock, amazing!
Why Tesla Is a Dangerous Stock
Why do I say Tesla is a dangerous stock for investors? Because its economic success thus far doesn’t indicate that others will have the same economic success and doesn’t even indicate that Tesla itself will make money in the future.
Logically, its valuation makes no sense in the context of other automakers. It’s gone so far as to say it’s not really an automaker, it’s an AI and robotics company. Why? Because the economics of the EV industry kind of stink. And Tesla is never going to live up to a $657 billion valuation selling cars into an oversupplied market.
Maybe Tesla can become an AI and robotics company, but $Rivian Automotive, Inc.(RIVN)$ can’t. $Lucid Group Inc(LCID)$ can’t. Nikla can’t. This puts EV companies between a rock and a hard place because they have no alternative but to try to increase capacity to reach positive operating profit eventually, even if they risk bankruptcy in the process.
Does Rivian make a great truck? Yes.
Can Rivian generate a high enough gross margin at a high enough volume the overcome its current operating expenses and reach profitability?
I doubt it.
And Rivian is arguably in the best shape of these EV manufacturers.
Polestar, Lucid, $Canoo Inc.(GOEV)$ , $Nikola Corporation(NKLA)$ , and everyone else who’s trying to scale up in EVs won’t become the next Tesla and likely won’t survive.
That’s the reality of the EV business and it’s because of operating leverage (or lack thereof) and the laws of supply and demand.
Why Tesla Succeeded (& Why Tesla Can’t Be Copied)
Tesla succeeded because it had a founder who could attract endless amounts of money by making his vision bigger and bigger. Remember when the Gigafactory was announced alongside a stock sale and the stock went up?!?!
Tesla was also a first mover in a market where revenue numbers get really big really fast.
And let’s not forget about that little pandemic that started in 2020 that left the entire auto industry undersupplied. Tesla raised prices during the pandemic because it had excess demand. But you can see in the last year that price increases didn’t stick.
There’s nothing “normal” or “repeatable” about Tesla. It’s an anomaly for a million reasons.
And I wouldn’t say that because Tesla did it Rivian or Lucid or $Plug Power(PLUG)$ or ATS SpaceMobile or any other company can do it. There is no “next Tesla”.
If you learn anything from Tesla, learn about why the company’s margins and cash flow dropped over the past two years as it sold more EVs than anyone else. That lesson will be more useful in analyzing other stocks than anything the stock could have taught in the prior decade.
https://asymmetric-investing.beehiiv.com/p/danger-in-ev-stocks
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
