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Berko: Real talk about Tesla, speculation

By Malcolm Berko

Published: August 25, 2018, 6:02am

Dear Mr. Berko: When Tesla stock was trading for $345, you told me to sell my 100 shares, which I had invested in at $96. I did. But within a few weeks, Tesla was trading at $386. You were persona non grata at our house. Now Tesla trades for $318. I need to know whether I should invest in it again.

— RG, Rochester, Minn.

Dear RG: There’s a difference between an investment and a speculation.

Elon Musk founded Tesla in 2003, the year that Funny Cide won the Kentucky Derby, Norah Jones dominated the Grammy Awards and the Tampa Bay Buccaneers beat the Oakland Raiders in the Super Bowl. Tesla became the leading developer of electric automobiles. In 2010, Musk began running out of money — but he believed that soon, Tesla would have tens of thousands of all-electric vehicles on the road. However, numerous snags and unexpected production delays continued to hurt production and sales. Musk badly needed money, so he decided to take Tesla public because it would be easier to lay off risks on thousands of small shareholders than it would be to do so on a consortium of private lenders. So Goldman Sachs, J.P. Morgan, Deutsche Bank and Morgan Stanley sold 13.3 million shares at $17 each, raising a mingy $220 million, and that was the beginning of Tesla’s $9 billion of current debt.

It was fascinating to watch Tesla Inc. (TSLA-$318) zoom higher and higher and climb to $386 a share in June 2017 and then — gasp — crash to $266 in nine months. And it was a delightful but frightful brouhaha to watch option traders and their nominees, on both sides of the pit, using put and call options (plus a combination of strips, straddles and straps), which can generate sweet profits as TSLA moves up and as TSLA moves down.

TSLA is not the kind of common stock in which one invests money. It is not an investment that belongs in pension plan accounts, nor is it a stock for orphans, widows, widowers, the illegitimate children of widowers or conservative investors. In fact, TSLA is not an investment at all; rather, it’s a screwball speculation like penny stocks, oil and gas partnerships, and maps of the Lost Dutchman’s Gold Mine. Tesla is well-known for missing deadline after deadline and constantly falling short on production numbers. Some watchers believe that Elon spends more time in his world than he does in the real world.

Given TSLA’s 10 straight years of losses totaling over $5.7 billion, working capital deficit of $1.8 billion, long-term debt of $9.5 billion, operating margins of 2 percent and expected loss of over $7 a share (nearly $2 billion) this year, I’d not care to own the stock. Elon is certainly an unusual and fascinating fellow, but he just doesn’t know how to run this business. Like Thomas Edison and Nikola Tesla — both of whom were also unusual, fascinating and lacking in the skills needed to manage men — Elon can’t manage a balance sheet, a marketing program or an income statement. However, if Elon were to leave Tesla — if his huge marble statues were removed from Tesla buildings, along with the life-size paintings, sculptures and large photographs of him — I’d consider owning the stock. Tesla’s Model S may be the finest car ever made. I drove one two years ago, and it was a heck of a hoot. In fact, the P85D, the high-performance version of the Model S, is the highest-rated car in the history of Consumer Reports.

TSLA was supposed to make $1 a share this year, but the usual Musk-snags have the bottom line showing a $7-per-share loss. Elon projects a profit for next year. So if you want to speculate, you can buy the stock. (But be mindful that when Tesla begins to report earnings, the stock’s price will be a lot lower.) If you would prefer to invest, then consider General Mills, Microsoft or AT&T. And when it comes to Elon’s talk about taking the company private, I doubt that the Saudis are dumb enough to invest in a company that has billions of dollars of losses.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com

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