Tesla & # 39; s founder and CEO Elon Musk has proven several times that his critics were wrong. Musk has become known for scandalous, sometimes controversial comments during interviews and via Twitter. Still, the shares of his electric car company are up 400% in the last 12 months, making it the best-performing company.
Last month, Tesla (NASDAQ 🙂 reported quarterly results that marked and ended a fiscal year in which vehicle deliveries reached 500,000 units, an increase of 36% over the previous year. After witnessing success after success, even some of Tesla & # 39; s most vocal bears capitulated, admitting they were wrong for a & # 39; Sale & # 39; on the stock to recommend.
got TSLA's stock all wrong, ”RBC Capital Markets analyst Joseph Spak wrote last month. Evercore ISI analyst Chris McNally said he:
"… been on the significantly wrong side of TSLA for over a year."
Indeed, McNally nearly tripled his target price for Tesla stock to $ 650. At the same time, Credit Suisse Group AG analyst Dan Levy doubled his target price to $ 800. The stock closed at $ 816.12 on Friday.
However, these candid confessions from the seller community do not hide the fact that it is still difficult to see the rationale behind some of Musk's recent moves.
The one currently attracting the most attention is his recent bet on cryptocurrencies using Tesla & # 39; s cash to make the investment. In a SEC filing released Feb. 8, the Palo Alto, California-based automaker disclosed that it had purchased $ 1.5 billion in order to diversify its cash reserves.
Tesla also said in the announcement that at some point it plans to allow customers to purchase its cars with Bitcoin.
Bitcoin & # 39; s Wild Moves
By entering this highly speculative segment of the market, Musk has put $ 1.5 billion on the line. approximately $ 19 billion in the company's cash that was on Tesla's balance sheet at the end of December. The electric vehicle manufacturer raised $ 12 billion last year by selling additional equity as it planned aggressive expansion.
Despite its recent appreciation, Bitcoin remains a highly volatile asset class with an unpredictable future. The currency can go up or down by 20% in one day, sometimes for no apparent reason.
Last month, the UK financial watchdog, the Financial Conduct Authority, warned that investing in crypto assets, or investments and lending linked to them, typically involves taking very high risks with the money. from investors. "When consumers invest in these types of products, they must be willing to lose all their money," said the regulator.
Although digital assets are relatively new, financial history suggests a similar speculative use of an industrial company's funds. has happened before – and it has generally ended badly, Wall Street Journal opinion writer Charley Grant said in a recent piece.
As an example, Grant noted that a century ago General Motors (NYSE 🙂 required a rescue operation. to speculative equity activities of founder William Durant. In the 1980s, widespread corporate speculation on Japanese land prices helped a stock bubble that eventually collapsed.
Along with widespread criticism of Musk's crypto movement, investors in Tesla shares have other causes for concern: shrinking profit margins, fierce competition in China and Europe, and a number of quality issues related to Tesla's cars. 39; s are some of the headwinds that are on the horizon. ]
Last month, Tesla told investors that operating margins shrank to 5.4% in the last quarter, from 9.2% in the previous three months, due to price cuts in China, supply chain costs and a large pay package given to Chief Executive Officer Musk and other key officials
Tesla was recently subpoenaed by Chinese regulators to answer complaints about quality and safety issues with its cars. China is a critical part of Tesla & # 39; s growth story as US sales appear to have peaked, at least in the short term.
Does this mean that Tesla & # 39; s breathtaking rally is coming to an end after a 1,000% acceleration in its stock value since March? Some analysts think so. According to RBC Capital Markets:
"Given the rise of the name, a" miss "in earnings, no specific 2021 guidelines and possible supply restrictions, we could see the stock taking a breather. But for long-time believers there is probably little to deter their thinking. "
Their analysts now have a target price of $ 725 per share on the stock.
Bottom Line
For investors who held Tesla stock during this pandemic, the results have been dazzling. However, that doesn't justify a founder risking shareholder money on a highly speculative bet in a segment of the market that remains volatile and unpredictable. In our opinion, Tesla itself remains one of the most speculative stocks on Wall Street. That alone should warrant caution on the part of anyone who owns or trades it.
