Thursday, January 1, 2015

Can Tesla survive collapsing gas prices?


Everybody loves Tesla Motors.

According to Thomson Reuters, 13 Wall Street analysts rate the supercharged electric car stock a “buy” or a “strong buy,” compared with just one lonely individual prepared to rate it an “underperform.” None dare call it a “sell.”
According to Thomson Reuters, 13 Wall Street analysts rate the supercharged electric car stock a “buy” or a “strong buy,”

Bold talk for a stock TSLA, +0.08% that’s gone from $37 to $223 in less than two years, and is today trading at a lofty seven times forecast annual revenue…and more than 360 times forecast “pre-exceptional” per-share earnings. The company, predicted to lose nearly $100 million this year, sports a market value nonetheless of nearly $28 billion. (That makes me think of the old prospectors’ joke from the days of the gold rush: “Two years ago I was flat broke. Today I owe $2 million!”)

Founder, chairman and super-entrepreneur Elon Musk has been the toast of Wall Street as his company’s shares have accelerated into the distance.

If only gasoline prices hadn’t just collapsed.
According to Thomson Reuters, 13 Wall Street analysts rate the supercharged electric car stock a “buy” or a “strong buy,”.

Maybe people are still going to line up to pay $70,000 for one of his fancy new battery-powered Tesla S models. But it was a lot easier to sell the concept when gasoline was $3.70 a gallon than it is at $2.25.

No wonder Tesla stock has slumped by nearly 25% since hitting its record high of $286 a share in early September. In the last three months, as the rout in oil and gasoline prices has deepened, Tesla stock has dramatically underperformed the Nasdaq Composite and the S&P 500 indexes. (Musk’s own net worth has suffered accordingly; read This is how much Elon Musk has lost because of oil’s plunge.)

Car buyers respond to changing gas prices quickly, too.

According to data compiled by Edmunds, the automobile market research company, sales of light trucks and other “gas guzzlers” (my term, not theirs) are suddenly booming again. And sales of hybrids, electrics and other fuel-efficient vehicles have suddenly, er, tanked.

From May through November, sales of hybrids and electrics slumped from 4.1% of the market to just 3.2%. Meanwhile trucks, vans and SUVs in November accounted for 55% of the market — their highest share since 2011.

Figures for the month of December, now that gasoline is even cheaper, are probably going to show more of the same.

Whether this is enough to run Tesla off the road is another matter. Personally I’d avoid any stock this popular and universally loved, but that may be just because I’m ornery and I don’t like crowds. Car fans seem to like the Tesla vehicles, and Musk knows how to market. (A couple of years ago, while strolling through midtown Manhattan, I came across a crowd of New Yorkers gawking and oohing and aahing over a parked car—an early model Tesla.)

It is an open question whether the recent collapse in oil prices is going to be a short-term thing or part of another long bear market, like the one we saw during the 1980s and 1990s.

But one thing that ought to be bullish for gasoline—and hence for Tesla—is that every time oil prices fall people just go out and waste it some more. Gasoline prices are down over six months, and already U.S. car buyers are shunning fuel-efficient vehicles and buying themselves a new SUV.