Tesla Inc will release its earnings numbers for the three months through June on Wednesday afternoon. The firm’s stock is sure to be volatile heading into the report, but those betting against the firm don’t speak with one voice.
Some traders are looking at the risk/reward ratio of the stock, and deciding that it’s not a buy at current prices. Others, however, are getting a little more creative. Over the last twelve months a lot of conspiracy theories have popped up. Most of these circle around secret intentions behind various statements by the firm.
With the release of the Model 3 and upcoming earnings, now is a good time to review what the more extreme Tesla bears are saying about the stock.
Tesla stock conspiracy theories drive bears
There are lots of good reasons to be bearish on Tesla stock. The firm has never made an annual profit, and its projects keep getting more expensive. It’s burning cash, and its entire future is built on production on a scale it has no experience with. That’s not what some of the bears are saying, however.
Value Analyst is a good example. The Seeking Alpha author thinks Tesla is heading for success, but they also think that CEO Elon Musk is actively trying to discourage people from buying the Model 3. That’s the car that the firm has been building up to for the last decade.
Value Analyst says, ahead of earnings, that the recent launch event was something of a sham. They describe it as the “corny Model 3 event to anti-sell the Model 3,” before claiming it didn’t work as enthusiasm “remains high”.
Despite believing in these ulterior motives, Value Analyst is positive on the future of Tesla stock. They’re projecting a profit for the firm in 2018 that grows quickly through the end of the decade.
Here’s where things get weird
Some others, like renowned Tesla stock bear Mark B. Spiegel, are much more extreme. Mr. Spiegel firmly believes that Elon Musk’s firm is one massive scam based on subsidies and technological fraud. He calls the CEO “Subsidy Leech–Boy” and is an all around hater of his projects.
Here’s a fairly representative tweet:
— Mark B. Spiegel (@markbspiegel) July 30, 2017
In his take, published back in May, he estimated that there will only be a sliver of profit on each Tesla Model 3 sold. That profit is going to be eaten up, in his mind, by the firm’s ordinary operating losses. In his view, then, Tesla will never become truly profitable because the firm is misleading the market about the cost of building the Model 3.
At the very least he’s not talking about Elon Musk’s links to the Freemasons or the Illuminati.
For Tesla Inc to try to down sell its own product, something would have to be very wrong. Maybe the car is shoddily built, and the firm just wants no one to buy it? There are good questions to be asked about Tesla, but there aren’t good conclusions to be built on a lack of answers.
Tesla is “lying” about the Model 3 numbers
The heart of this conspiracy theory is that Fremont isn’t able to meet its gross margins on the Tesla Model 3. That could be a reason for the perceived down selling of the car. Tesla has promised for years that its mass market vehicle would sport wide margins.
These conspiracy theories are really the super-bearish versions of fears all Tesla Inc investors have. What if the firm’s financial promises are too ambitious? What happens to the stock price if margins seem permanently lower than promised?
We won’t find out on Wednesday how the Tesla Model 3 margin is working out. That’s because the first cars put out by the firm are sure to be loss makers. Tesla isn’t going to start making a profit until it hits mass production of the car. The firm reckons that should happen before the end of the year. The planned production curve is outlined in the above chart.
Is Tesla trying to talk down the Model 3?
Just because there’s no hard evidence for this theory doesn’t mean it can be dismissed directly. Tesla may indeed be trying to down sell the Model 3. The problem is, of course, that there are much more valid reasons Tesla may be trying to convert sales.
The firm is a business, and businesses exist to make a profit. That’s something it has wholeheartedly failed in for its entire existence. Every time someone orders a new Tesla Model 3 the firm only gets a $1,000 reservation fee.
In order to get the rest of that cash, the Fremont automaker has to wait at least a year to convert the sale. It can cut that wait right down if it manages to convert some sales to the Model S.
Selling a Model S today is much better for the firm than selling a Tesla Model 3 next year. That’s going to be true no matter what the relative margins between the cars. Tesla wants to quench its cash burn sooner rather than later, and that would help greatly.
When presented with a theory that has nothing but “just-so” stories to back it up, it’s a good idea to look for alternate explanations. Basic logic heuristics tell us that stories with too many moving parts and no evidence are likely worth ignoring.
The Tesla Model 3 conspiracy theories present themselves in this way. There’s no need to believe that there’s shadowy motives behind every statement made by Elon Musk. His tweets aren’t a great big distraction. They’re statements from a CEO and should be treated as such.
Tesla stock is a tough bet
So, looking at the financials, you may decide that Tesla stock is over priced. That’s an honorable and reasonable position. If you’re making decisions based on a 4D chess game you’re playing with Elon Musk in your own mind, however, it may be time to stick all of your savings in an index fund.
That will protect you from both the volatility of the stock and the volatility of an imagined tech industry full of ghost stories. Meanwhile the Tesla Model 3 will rise and fall based on its own merits.
Believing that those can be sussed out based on a quick glance from the firm’s CEO, or a website design update is a very dangerous way to decide which companies deserve your investment.