Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Tesla is a Terrible Stock but a Good Auto Brand

Tesla is a terrible stock but a superb auto brand. To explain, Tesla Motors (NASDAQ: TSLA) is succeeding as an automaker, but the basic characteristics of its stock are horrendous.

Most importantly, real people in the real world are buying and driving Tesla’s vehicles. In particular, I decided Tesla was for real when I saw a Model 3 sitting in the dollar store parking lot. Hence, a real person drove the car on an everyday errand – namely shopping.

Thus, Elon Musk has won the first and most important battle. Significantly, Elon has gotten the public to accept Tesla as a brand of automobile. In addition, Musk is demonstrating that an electric car company can make money.

Surprise Tesla is a terrible stock, but it is making money

In fact, Tesla records an operating income of $416.76 million; and a net income of $311.52 million, for 3rd Quarter 2018. Those were the first positive income figure Tesla recorded since September 2016.

Impressively, Tesla reports a gross profit of $1.524 billion on revenues of $6.824 billion for 3rd Quarter 2018. Best of all, Tesla records and incredible revenue growth rate of 128.65% for 3rd Quarter 2018.

In detail, Tesla reported revenues of $4.002 billion for 2nd Quarter 2018 and $6.824 billion three months later. Notably, Tesla’s gross profit nearly doubled from $618.34 million in 2nd Quarter 2018 to $1.524 billion in September 2018.

Therefore, Tesla is a strong auto brand that is capable of generating income and impressive revenue growth. Moreover, Tesla is finally generating some serious cash.

Significantly, Tesla records a free cash flow of $831.52 million and an operating cash flow of $1.391 billion for 3rd Quarter 2018. This was far better than the -$129.66 million negative operating cash flow and the -$806.88 million negative free cash flow three months earlier.

Tesla is starting to look like a real Auto Company

Tesla is a terrible stock, but it can generate a lot of cash. Hence, Tesla is displaying similar characteristics to other auto companies like Ford (NYSE: F). For instance, Ford records an operating cash of $5.179 billion and a free cash flow of $3.198 billion for 3rd Quarter 2018.

Hence, Tesla’s financials are looking like those of a real auto company. To clarify, a real auto company generates a lot of cash but reports a fluctuating income.

Finally, Tesla had cash in the bank in the form of $3.126 billion in cash and equivalent on 30 September 2018. However, Tesla is small potatoes compared to Ford. In fact, the Ford Motor company had $18.562 billion in cash and equivalents and $17.780 billion in short-term investments on 30 September 2018.

Tesla is a Terrible Stock

Tesla is a terrible stock for two basic reasons; Mr. Market grossly overprices Tesla Motors (NASDAQ: TSLA), and it pays no dividend.

In fact, Tesla shares traded at $346.05 on 16 January 2019. The only figure in Tesla’s financial numbers that justifies that price is the revenue growth.

Significantly, other auto brand stocks like Ford and General Motors (NYSE: GM) are trading at far lower prices. Ford was trading at $8.29 and GM was trading at $37.67 on 16 January 2018.

Moreover, Ford offered a dividend yield of 6.67%, an annualized dividend payout of 60¢ and a payout ratio of 43.5% on 16 January 2018. The last Ford dividend was 15¢ paid on 3 December 2018.

Meanwhile, General Motors offered a 38¢ dividend on 20 December 2018. Additionally, GM provided a dividend yield of 4.04%, an annualized payout of $1.52, and a payout ratio of 25.5% on 16 January 2018.

Under present circumstances, Ford or General Motors will better serve an investor looking for a good American auto stock. Note: I analyzed Ford and GM here because they are the only two large American automakers. They base the other big US auto brand, Fiat-Chrysler (NYSE: FCAU) in Italy.

Elon Musk is the new Henry Ford

Tesla’s greatest attribute is also its greatest liability. That attribute is Elon Musk the eccentric, brilliant, larger than life, and crazy visionary who created the brand.

In fact, it has been a century since the auto industry has seen anybody like Elon Musk. The last auto executive who can be safely compared to Musk is Henry Ford.

Like Musk, Ford was a brilliant, highly independent, eccentric, and stubborn man who broke all the auto industry’s rules. Like Musk, Ford spent years and burned through vast amounts of cash in order to his vehicles to market.

In detail, Ford began building cars in 1896 but did not incorporate the Ford Motor Company until 1903. Additionally, Ford did not unveil his signature creation the Model T until 1908; and did not open his famed moving assembly line until 1913, 17 years after he entered the auto industry.

Likewise, Musk launched Tesla in 2003 and unveiled the first car in 2008. Plus, Tesla unveiled its signature vehicle the Model S in 2009 but did not go into production with the Model S until 2012.

Meanwhile, work on the Gigafactory, which is still far from complete began in 2014, they announced Autopilot in 2014, and the Powerwall unveiled in 2015. Plus, they unveiled the Model 3 prototype in 2016, but deliveries of the affordable Sedan only began in September 2018.

Hence, like Henry Ford, Elon Musk is a stubborn, patient, and dedicated man. Moreover, like Ford Musk is a risk taker and a person willing to burn a lot of cash to achieve his dreams.

Elon Musk and Henry Ford

The similarities between Elon Musk and Henry Ford are vast and unsettling. For instance, both men were larger-than-life celebrities and beloved public figures.

However, both men generated vast amounts of controversy with bizarre behavior. For instance, in 1919, Ford confused the public with claims he was about to start a new company that would sell a $300 car.

Company’s stock price. Most likely, Ford was attempting to keep his son Edsel from taking control of the company with his claims. Hence, Ford like Musk knew the value of media manipulation.

In addition, Ford sometimes displayed bizarre and extremist political rhetoric. In 1920, Ford published vicious anti-Semitic propaganda in his newspaper The Dearborn Independent.

Plus, like Musk Ford loved massive projects including the gigantic River Rouge auto factory and Fordlandia, a failed giant rubber plantation in Brazil.

The Dark Sides of Henry Ford and Elon Musk

Late in life, Ford became one of America’s hated men. They loathed him for violent union busting, and admiration for Adolph Hitler.

In fact, during World War II, the federal government considered seizing the Ford Motor Company from Henry. The plan was to place the Ford Motor Company under the control of other more cooperative auto executives, A.J. Baime reveals in his book The Arsenal of Democracy.

The reason was Ford’s alleged Nazi sympathies, terrible labor relations, and refusal to cooperate with the war effort. Ford eventually gave into federal and United Auto Workers (UAW) demands to prevent nationalization.

Only history will tell if Musk will take such a dark turn. However, Elon has had his share of controversy. Noted Musk controversies include a close relationship with unpopular President Donald J. Trump (R-New York), accusations of racism and union busting at Tesla Motors, a feud with the SEC, and pot smoking on television.

Musk fans and Tesla stockholders should know Ford’s dark history. If Elon Musk takes a similar turn, it could severely damage the Tesla brand. Ford nearly destroyed everything he built with his arrogance, anti-Semitism, and Nazi sympathies.

The cult of Elon Musk makes Tesla a terrible stock

The equally egotistical Elon Musk could end up the same way. Ford’s history should serve as a warning to investors who buy into the cult of a rock-star founder/CEO. When you invest in a CEO, you invest in his or her flaws and the individual’s strengths or genius.

Notably, Tesla Motors (NASDAQ: TSLA) could lose all its market capitalization because the stock’s primary “value” is Musk’s star power. If Musk quits or gets forced out, Tesla will become just another auto company.

Hence, Tesla’s share price could fall to the same level as Ford’s if Elon leaves. Under those circumstances, Tesla shares could trade for less than $10.

Understanding that rock star CEOs are usually deeply flawed human beings is critical to value investing. Thus investing in companies rather than individuals is always a better strategy.

Henry Ford’s history demonstrates the cult of Elon Musk is one reason Tesla is a terrible stock. The cult of Henry Ford nearly destroyed the Ford Motor Company. Hopefully, the cult of Elon Musk will not destroy Tesla Motors.