Tesla (TSLA, Financial) bulls have consistently sustained the stock’s overvaluation; however there are plenty of reasons to stay away from the stock. While Tesla’s overvaluation has withstood the test of time, it will not last long.
Reduced guidance
From the start, Tesla has noticeably specified that the company expects the second half of 2016 to characterize a greater portion of deliveries compared to the first half of this year. On the other hand, the company also expected the first half of the year to perform better than it has. However, the company failed to fulfill its own guidance for vehicle deliveries in the first and second quarters as it has delivered only 29,190 vehicles.
Tesla longs should be used to broken promises by now as Elon Musk has failed to match much of his delivery, profitability or productivity guidance over the last few years.
In the first quarter, the company projected to deliver around 16,000 vehicles, but the total deliveries were 14,820, 1,180 less than its guidance, whereas in the second quarter, the company delivered 14,370 vehicles, 2,630 vehicles less than its guidance.
As a result, after performing badly in the first half of this year, the company still has approximately 55,800 vehicle deliveries left in order to reach the midpoint of its guidance range. As per the most recent update from Tesla, it was noted that the company is decreasing its guidance for the entire year as it now projects to deliver around 50,000 vehicles in the other half of this year.
BMW, a tough competitor
In the case of driving dynamics, BMW (BUD:BMW, Financial) is far better than Tesla, mainly due to its handling expertise. One more significant reason is the lightweight architecture of its imminent 3 series.
BMW’s new upcoming 3 series will be grounded on Cluster architecture. This architecture is a modular architecture. It means that it can be used as the basis for vehicles of variable sizes, and it is expected to ultimately strengthen most rear-wheel drive BMW models.
This architecture uses a mixture of high-strength steel, carbon fiber and aluminum to decrease weight while surging physical rigidity. However, apart from that advantage, escalated structural rigidity will convert into superior handling, and in the case of BMW, handling accounts for that perilous part that makes it a better than Tesla.
With the EV market growing, Tesla will be faced with a lot of competitors going forward. Although Tesla has managed to outperform its competitors now, the long-term trend may change as the company can’t continue losing money forever.
Conclusion
Due to the reasons mentioned above, Tesla is a strong sell at current levels. Tesla will likely fail to meet its delivery guidance again, and I don’t see how the company plans to satisfy the demand for its Model 3. Moreover, Tesla is expected to continue losing and will likely run out of money before turning profitable. Investors should avoid the stock.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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