Tesla Motors Is About To Crash And Burn

Tesla, the greatest fanboy stock of the past half decade, is well on its way to becoming nothing more than a memory. The news of a recent fatal crash of a Ohio man and the pending SolarCity buyout could two of many insurmountable difficulties that cause this company to fail.

Even with a perfect storm of negativity, and gross uncertainty, Tesla (NASDAQ: TSLAshares still trade above $200.

Why is that? How can so many shareholders simply overlook the fact that Tesla is still a long way from making money? Not to mention the recent move to buy SolarCity (NASDAQ: SCTY), which is a deal filled with corporate governance red flags.

To start, Tesla founder and CEO – Elon Musk – has created a cult-like following among investors, especially within the entrepreneurial ecosystem. Now, shares did go from $280 to $150 a share after we called Tesla the market’s biggest mistake of 2015. However, the hype of Tesla becoming the next Apple (NASDAQ: AAPLhas overshadowed any reality as shares are trading back over the $200 mark.

The Tesla story includes a grand plan, and Musk has certainly been praised for his grandiose visions in the past. Musk, who also founded SpaceX, has laid out an aggressive plan to colonize Mars within the next decade. But is he stretching himself just a little too thin these days?

More Dire Than Ever

The key for Tesla shareholders, and potential big dilemma is that things look worse than ever. There’s a perfect storm brewing against Tesla, which is being further fueled by the death of an Ohio man driving a Tesla, whose death marks the first time someone has died in any car using an autopilot feature. This raises questions about the future of driverless cars, and Tesla’s role in it, as it’s been hit with several car fires in the past year.

What’s more is that in the second quarter we saw another round of missed expectations, but what could ultimately send Tesla into its death spiral is its purchase of SolarCity Corp. for roughly $2.8 billion in an all-stock deal.

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Moon Kil Woong 3 years ago Contributor's comment

The main issue with Tesla is really Solar City that needed Space X to fund them and now needs something bigger because it's business model is taken right out of GE's don't do book. Solar City finances customer's installations and runs cash flow negative for every panel they sell and install until the contract starts paying off, hopefully. Failure to do so gives them nothing but old panels and removal cost which is not worth the cost and is why some might opt to terminate it save the penalties. Thus, most defaults would probably come from housing crisis' bankruptcies which would make it harder to sell the house because the new buyers would have the solar contract liability on top of the purchase price.

The whole issue is, don't try to be a bank when you aren't one and are cash flow negtive. Also don't do this business when you are expected to grow which makes you loose more cash flow for every installation you sell. And last, don't sell your stuff so low you require a financing deal to make a profit, because in reality you are selling not solar but a housing debt contract with solar as a kicker.

Hmmm, I wonder if they will do this with cars now. If so, I'd sell because you usually only do this if the product you sell can't be sold otherwise which is the big issue Solar City should be asking. If it is yes, then it needs major reform, not a bigger sugar daddy.