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Top 5 Reasons Why NOT to Buy Tesla (TSLA) Stock

Founded: 2003

Tesla has only been in business for 15 years which is troubling because they haven’t had to switch CEOs and they haven’t been through severe economic recessions or depressions to see if they can withstand the added pressure. While Tesla is a cutting-edge auto manufacturer, it’s no surprise that they’re losing money, but they’re still young compared to 100-year-old companies that have not only been through wars, depressions and stock market crashes, but prevailed and prospered afterwards. Tesla hasn’t had the chance to prove that they can withstand the added pressure, and let’s hope they never have to, but for the companies that have gone through tough times (McDonalds, Coke and Disney) it makes it easier to believe in the next 10 years of progress without thinking about elections, wars and depressions affecting the results. Furthermore, Elon Musk has a history of leaving companies that he starts for other opportunities, and I think SpaceX is more of a passion for him than Tesla.

Tesla (TSLA) Founded in 2003

Buy the entire company of Tesla for pocket change; $52 Billion.

Tesla (TSLA) Market Cap

Balance Sheet

Tesla’s balance sheet is awful, starting with negative retained earnings in the billions and ending with net tangible assets of $4 billion supplemented by selling their own stock. They have $4 Billion of equity and $3.7 Billion of net tangible assets which is amazing progress in only 15 years. This is a negative reason on my list because of how it compares to the market capitalization, which is $52 Billion at the price of $309 in September 2018. I could buy all the shares, own Tesla and be the CEO if I pay $52 Billion today. The problem is that I only get $4 Billion of “stuff” or total net tangible assets to sell when times get tough. If I buy a company for $52 Billion, then I’d like to have $40 Billion in net tangible assets along with $3 Billion in net income. That way, I’d get my money back in 4-5 years.

Tesla (TSLA) Balance Sheet Equity Over 4 Years

Income Statement

The income statement is awful too, going from (-$294 Million) in net income in 2014, to (-$888 Million) in 2015, to (-$675 Million) in 2016 and to (-$1.95 Billion) in 2017. Based on the quarterly figures, it appears TSLA might make even less, losing upwards of $720 Million per quarter in 2018, so we’ll base the calculation on their latest and greatest negative earning power, (-$2.5 Billion) per year, and continue adding it to the balance sheet to see how long it takes to get our money back. First, we buy TSLA for $52 Billion ($309/share) and immediately secure $3.7 Billion on net tangible assets. Think about buying yourself as a company and liquidate everything you have until you’re naked on the street. Once you pay off everything as well, how much do you have? Tesla has $3.7 Billion but it costs $52 Billion to buy them.

$3.7 Billion + (-2.5) + (-2.5) + (-2.5) + (-2.5) + (-2.5) + (-2.5) + (-2.5) + (-2.5) + (-2.5) + (-2.5) = (-$21.3 Billion)

Tesla (TSLA) Income Statement Over 4 Years

After 10 years of owning Tesla I’ll end up with far less than zero, (-$21.3 Billion) and still need to wait an indefinite amount of years to get my original $52 Billion back. Most investors want to make their money back in 5 years, yielding 20% without compounding, and this investment will need to turn the income statement positive first, then it will take many years to get our money back. The only positive thing to say about Tesla’s income statement is that the top line (Revenue) continues to rise. It was $11 Billion in 2017, putting the worth of the company at 5-times revenue, which is insane. I’m not sure who’s convincing people to buy this stock but it’s worth nothing. In fact, I wouldn’t even take the company for free because it loses $2 Billion each year and the only money it has on the balance sheet came from selling their stock.

Cash Flow Statement

There are 3 things I like to consider when reviewing the cash flow statement for any company which are Dividends Paid, Buy Backs and Net Borrowings. Tesla doesn’t pay a dividend because they have no money. As a stockholder, I like to get a dividend as a return on my investment rather than simply holding their stock for 5 years and hoping for appreciation. Tesla doesn’t buy back any of their shares either. In fact, they do the opposite, they sell their shares to support the continuous loss on their income statement. When a company buys back their shares with profits it tells you that they think it’s an attractive price and that your shares will be worth slightly more. Tesla is doing the opposite, by selling their shares, $4.7 Billion worth in 4 years, and lowering the stock price.

Tesla is currently taking on massive new debt in the amount of $8 Billion over the last 4 years. As a stockholder I like to see that a company is making plenty of net income, paying a dividend, buying back shares and paying off debt, and Tesla is doing the opposite in all 3 accounts. They aren’t paying a dividend, they are selling their shares and taking on new debt, all at once. It doesn’t excite me to buy Tesla for an inflated price tag only to get nothing back from them at all.

Tesla (TSLA) Cash Flow Statement over 4 Years - Dividends - Buy Backs - Net Borrowing

Goodwill and Intangible Assets

The final reason I wouldn’t buy or recommend Tesla stock is that they have $300 Million of Goodwill on their balance sheet. The equity level is $4 Billion, and the net tangible asset level is $3.7 Billion because of $300 Million in Goodwill. This means that Tesla bought a company (Solar City), or multiple companies, in the past, for $300 Million more than their book value. I always subtract the goodwill and intangible assets from the equity on the balance sheet because you can sell it.

Tesla (TSLA) Goodwill and Intangible Assets

In conclusion, the only reason to buy Tesla stock is the hope to sell it to someone else for more money. I’d rather invest my money into assets that make annual income, like a dividend from Toyota Motors or a piece of real estate with rental income. I’d rather invest my money into companies that have been in business for much longer than 15 years, where the book value is close to the market capitalization, where the income will return my investment within 5 years and where the company gives out a dividend, buys back shares or pays down debt. Tesla only has money on their balance sheet from selling shares of their company and there’s no way I’d pay $52 Billion for a company that has no money and loses money every year, never mind losing billions every year.


Written by: Chris Bell