Founded in July 2003 by Martin Eberhard and Marc Tarpenning, Elon Musk became the largest shareholder in 2004 with a $6.5 million investment.
Based now in Austin, Texas, Tesla Inc. (NASDAQ: TSLA) is the preeminent electric car company in the world, with revenue in 2022 of $81.46 billion. Led by technology visionary Elon Musk, the company has dominated the competition for electric vehicles. The first Tesla product, the Roadster sports car, debuted in 2008, followed by the Model S sedan, introduced in 2012, and the Model X SUV, launched in 2015.
Elon Musk is the company’s largest shareholder, with an estimated 412 million shares of the company, representing just over 13% of the outstanding float. After roaring higher for almost a decade, the shares slowed down in 2022 on the heels of a lost year for the stock market.
As of earlier this year, retail investors owned about 1.36 billion shares of the company, or about 43% of the company, while institutional investors owned almost 43%, totaling approximately 42.84%. Company executives hold 14% of the stock.
While Elon Musk and the company became the darling of Wall Street, his plunge into Twitter (X) and a cornucopia of additional investments that have grabbed his attention have some doubting the Wall Street legend. We don’t question him, but we found seven reasons to avoid Tesla stock.
Tesla stock is costly
The stock is pricey on almost every metric when trading 81 times trailing earnings. In addition, the shares have more than doubled over the last year, climbing from $108 in January to the current $250.91. It’s safe to say a ton of money has already been made.
Most Americans don’t want an electric car
A study by Yahoo Finance in October of this year indicated that most Americans have yet to buy an electric car, and most don’t intend ever to buy one. In addition, many who do buy electric vehicles often return to a gas car on their next purchase.
The exact reasons haunt Tesla and other electric car companies year after year
Consumers continue to cite that EVs are very expensive and have a limited driving range, and the overall infrastructure for EV charging around the country needs to be improved. Those existing charging stations are often empty in some states while jammed with a long wait in others.
Tesla’s manufacturing quality leaves a lot to be desired
Trade magazines and consumers have complained about the company’s “shoddy build quality” and lousy product quality control. Customers often cite assembly issues like doors that don’t close properly from the factory and misaligned body panels and trim pieces. Peeling vegan leather has also been noted, in addition to paint issues and more.
Tesla’s sales volume is falling
The company reported a decline in sales volume for the most recent quarter, and with the potential for the economy to turn down next year, that clearly will not bode well for Tesla and other carmakers. Toss in so-so operating margins, and the fact that the Chinese are turning to domestic brands are all issues that don’t play well for the stock.
Gasoline prices are coming down
With Americans preferring internal combustion engine cars by a large margin, high gasoline prices, once the clarion call for owning electric vehicles, have plummeted this fall, with West Texas Intermediate oil plunging to $71.65 from well over $90. There is no better sales pitch for gasoline-powered calls than lower prices at the pump.
The competition is growing and getting stronger
Many major domestic and foreign car companies are producing EVs in some form, and while all don’t have Tesla’s cache, the price points for many are much lower than Tesla’s. With Chevrolet (NYSE: GM) and Nissan already producing EVs and many other big players joining the fray, the once-captive Tesla audience may thin as other models come to market.
Lastly, it’s crucial to remember Elon Musk is essential to the company. While he has assured Tesla owners and investors he is committed to the long-term Chief Executive Officer role, between SpaceX, Starlink, and X (Twitter) and other commitments, it is possible he could get spread too thin, which is not a positive for those contemplating buying the shares now. Our opinion is to wait for a substantial pullback before buying Tesla stock.
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