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Tesla stock has been very disappointing. Or, in the words of Al Root of Barron’s, it’s “positively boring.” Many had high hopes for the visionary founder, CEO, and product architect, Elon Musk. But on June 6, Musk canceled the release of a much-anticipated new Tesla model. He announced this in a tweet saying there is “no need” for the Model S Plaid Plus, “because Plaid is just so good.”
So where does Tesla go from here?
Playing it Safe
The Tesla Model S, a five-door lift-back sedan, has been around for nine years. The latest iteration, Tesla’s Model S Plaid, has a 390 mile range and 1,020 horsepower, though it does have impressive acceleration: zero to 60 mph in just two seconds. MotorTrend found the car impressive, but also found room for improvement: especially the odd rectangular steering wheel, which is “a pain” when parking or doing a U-turn.
The Plaid Plus, with the same acceleration as the Plaid (and, alas, the same steering wheel,) was expected to feature a range of 5,290 miles, coaxing 1,100 horsepower out of its 4,680 battery cells. This seems another step along the same road as the Plaid. Yet its release has not been merely delayed, it has been canceled outright.
The Stock Price: a Plunge, then a Flat Line
What about the stock price? Tesla (NASDAQ: TSLA) hit a high of $762.32 on April 13. It headed down thereafter, before bottoming out above $560 on May 19. The rise of inflation expectations may explain this dive. Inflation has been excited anew by the 13 years of money creation, “quantitative easing,” since the global financial crisis, and the new fiscal commitments undertaken by the U.S. government in the wake of the pandemic.
In an effort to contain this inflation, the Federal Reserve has warned of upcoming interest rate hikes. This could be very disappointing news for Tesla, for a couple of reasons. First, there are Tesla’s future cash needs to consider. Tesla raises money by issuing stock. It has done so 14 times in the last dozen years. Yet continuing to do that threatens to dilute the stock of existing shareholders, setting off a rebellion. So borrowing at the market rate of interest will have to remain an option.
Second, and perhaps more important, Fed decisions to increase interest rates will reduce the present value of expected future earnings. Tesla is the ultimate growth stock. Those expected future earnings are already factored into its price. That might suffice to explain the disappointing stock price performance of late April and two-thirds of May.
The stock has made up some ground, but it has now plateaued in the neighborhood of $600 – $625.
Aside from the macroeconomic issues discussed above, actual or potential investors in TSLA ought to concern themselves with supply chain issues. Musk himself (again, in a tweet) has acknowledged that there have been raw material disruptions.
Some of those who have written about the cancellation of the Plaid Plus have blamed supply chain problems such as a shortage of computer chips.
Is There a Good Reason to Buy?
Given the above concerns is there a good reason to buy TSLA? Is there any way that it will not prove disappointing? Obviously, electric cars aren’t especially cutting-edge at this point. Tesla may have first-mover advantages, otherwise … everybody is doing it.
The new cutting edge is the fully autonomous vehicle. Again, dozens of companies are working to hone that wedge. But, as Mark Reeth and Jordan Kron wrote half a year ago in US News, Tesla has advantages in the use of cameras, radars, and GPS that may have the others playing catch-up for some time.