Tesla is a terrible stock to buy/hold. The car manufacturer isn’t selling a lot of cars (relative to the rest of the industry), isn’t making any profit (in fact, it is losing money) and isn’t making the impact many thought it would once things were in order. But still, many either continue to buy or hold on to the stock. Why?
To understand the mindset of these people, one must look at another company – one that wishes to either emulate or purchase Tesla for quite some time now: Apple.
After Steve Jobs released the first iPod in 2001, there was a six year lull before Apple released another revolutionary product (this time around, it was the first iPhone in 2007). During those six years, analysts and bloggers all wondered if Apple was done. More specifically, will Apple be able to continue to shock the world after doing it twice already with the iMac G3 and the iPods? If so, why hasn’t Apple released anything revolutionary? Are they out of ideas?
As the years passed, the number of people who were skeptical of Apple’s future began to grow.
But on the other side of the fence, there were the fierce believers.
Many on this side of the fence exclaimed that for as long as Jobs isn’t done, neither is Apple!
They urged the skeptics to look beyond Apple’s product line and into the leaders leading Apple.
At helm was Jobs: the man many knew to not only be charismatic and insanely smart, but also a perfectionist. Even when these Apple evangelists lost faith in the products Apple were churning out, they still believed that for as long as Jobs was leading the company, Apple isn’t screwed yet. Jobs saved the company from bankruptcy once, and he will stop at nothing to make sure the company succeeds.
In short, these Apple supporters did not believe in Apple the company… they believed in Jobs the man.
When Jobs died, uncertainty clouded over Apple: how can Apple continue to innovate without Jobs, when Jobs is Apple and Apple is Jobs?
Although Tim Cook has done a fantastic job so far, the cloud, by many measures, continue to hover over Apple.
Now, let’s go back to Tesla.
Last Thursday, Tesla reported in their Q4 2014 earnings report that they’ve failed to deliver on both projected earnings and car deliveries. The stock fell by 7% shortly after.
In an analyst report by Bank of America Merrill Lynch (obtained by B.I.), the bank has an underperform rating and a price target of $70 – way lower than the ~$200 the stock was trading early Thursday – due to the numerous risks surrounding the company.
One of the more interesting risks outlined by BofA is something known as the “key-man” risk. It is when the entire company essentially depends on one person, and should that person resign or pass away, the company’s immediate future is in danger. Just as Jobs was crucial to assuring supporters and investors of Apple’s future, BofA is worried that the stability and future of Tesla will be jeopardized if Elon Musk decides to resign or passes away one day.
“In our view, many bulls view Elon Musk’s leadership and business acumen as the crux of their investment thesis in Tesla shares,” the firm writes.
“In fact, we have been told on more than one occasion that betting against Musk is unwise. While we certainly cannot argue with the successes, both past and present, of Tesla’s charismatic CEO, we do recognize the existence of key-man risk. In other words, investors should perhaps ask themselves how comfortable they would be with their investment if Elon Musk resigned from Tesla… [we have] a hard time believing anyone would argue that the Tesla story would not change dramatically without Musk in the picture.”
If Elon Musk wants Tesla to survive beyond himself, he can easily do so. But that means that he’ll have to give up some control. Word on the street is that Musk is a control-freak, very much in the same way Jobs was when he was still alive.
So, as it stands right now, the “key-man” risk will continue to haunt Tesla. And if you don’t believe it exists… can you name one other person who works for Tesla other than Musk?