Why you shouldn't invest in Tesla stock … Financials resemble those of many struggling firms … In my last column, I wrote that Tesla Motors Inc. would have to go back to the federal government for more loans next year to stay afloat, given the state of the company's finances. Those finances include four consecutive quarters of widening net losses, four consecutive quarters of larger operating deficits and a balance sheet that was in the red at the end of the third quarter. – John Shinal, Wall Street Journal
Dominant Social Theme: Tesla, a groundbreaking electric car company, will go on to bigger and better things for sure!
Free Market Analysis: John Shinal is back with a second article blasting Tesla, an advanced technology (green) auto company that makes both electric cars and power train components. Tesla trades on the Nasdaq under TSLA.
As both a public company and a leading electric car manufacturer, Tesla receives a lot of scrutiny for both its product and its financials. Tesla's ¨big idea¨ is the Tesla Roadster, an electric sports car, and more recently, another big idea, the Model S, which is a luxury sedan.
The fundamental vision is to make electric cars that are just as good if not better than gas-powered cars, The dominant social theme, therefore, is that the world needs topnotch ¨clean energy¨ for the soul and also so that carbon doesn't clog the atmosphere.
A subdominant social theme would be, ¨Drive Teslas because they are fun and because you are a responsible citizen … and now you have a way to illustrate it."
Of course, a cursory examination of global warming evidence brings us smack up against an inconvenient truth … that global warming probably doesn't exist and that even if it did, the amount of manmade carbon in the atmosphere (versus water based greenhouse elements) won't affect the atmosphere's balance one way or another.
And that offers the question … Why bother to make electric autos?
This is a question, in our view, that car companies have yet to answer. The technology remains clunky, the range is restricted and often the cars themselves sacrifice solidity for mileage.
Nonetheless, Tesla Motors has gained widespread attention by producing the Tesla Roadster, the first fully electric sports car, according to company literature. And now the Model S sedan is scheduled for production.
Tesla's autos are fairly expensive and the Roadster has received mixed reviews. But few have questioned the solidity of Tesla's financials until recently.
But now John Shinal has cast some doubt on this aspect of Tesla Motors. Shinal has pointed out the company might have to sell additional public stock to fund operations. The company bled US$223 million for the trailing 12 months ending in September.
Going to the public markets is not apparently a painful option for Tesla, as the company has been successful in raising gobs of money in the past. According to the article, Tesla raised "about $195 million in a follow-on offering executed and underwritten by Goldman Sachs, selling 6.93 million shares at $28.25 each."
Shinal is blunt about the offering and Goldman's part in it, which he finds suspicious because of Goldman's track record on numerous fronts. Here's some more from the article …
Goldman Sachs Group Inc. (US:GS), you might recall, was one of the investment banks that sold mortgage securities to private investors and governments around the globe in the last decade. Within several years, those securities turned out to be worth only a fraction of what they had paid Goldman. The same fate likely awaits the buyers of the Tesla shares in that offering …
Our question is even more fundamental than whether or not Tesla will make a profit. As we mentioned above, we're focused on why these kinds of cars are being produced in the first place.
To us it is a triumph of elite dominant social themes over reality. The reality is that climate change is surely a kind of manufactured crisis and these kinds of cars are an incompetent response to a nonexistent problem.
Investors who follow elite dominant social themes are perhaps more likely than others to be wary of these kinds of episodes. When one understands scarcity memes and the lengths to which the power elite will go to propose statist solutions, then one is apt to be careful about investing in the ¨latest and greatest¨ technology.
We harp on this only because it would seem that Tesla provides us with yet another clear cut example of how these themes work and how the solutions being proposed are often more promotional than realistic.
Understanding the world around you and the way it REALLY works can help you protect your family, your community and your wallet as well.