By Justin Spittler, editor, Casey Daily Dispatch
It’s do or die for Tesla.
Tesla, as I’m sure you know, is a major electric car maker. It makes more electric vehicles (EVs) than any other U.S. company. That puts it at the forefront of the EV revolution, one of today’s biggest megatrends.
Because of this, Tesla’s been one of the hottest U.S. stocks. Its share price surged more than eightfold between the start of 2013 and this past January. By comparison, the S&P 500 gained 95% during that same period.
This epic run turned the company into a household name. It made Tesla one of America’s most sought-after stocks. Everyone started buying it.
But many Tesla shareholders now have buyer’s remorse. And that’s because Tesla’s stock is in free fall. Just look at this chart.
Tesla’s down 23% since September 2017.
• After a plunge like that, many people are probably tempted to buy Tesla…
And I can understand why. After all, “buying the dip” has been a brilliant investing strategy for the last few years. But it won’t work this time.
Tesla’s stock will keep falling from here. It could even be the canary in the coal mine for the rest of the U.S. stock market.
I’ll explain why in a second. But let’s first look at why Tesla’s stock is plunging…
• One week ago, Moody’s downgraded Tesla’s credit rating…
The credit rating agency now rates Tesla’s debt as B3, down from B2.
That’s seven notches below investment-grade.
That’s a big deal. It means that it will soon become a lot more expensive for the electric car maker to borrow money. And that’s the last thing Tesla can afford.
You see, Tesla’s already paying nearly $600 million per year just to service its debt. That amounts to about $4,884 for every car the company has sold.
The company’s also burning through about $6,500 in cash every minute. At this rate, the company will be out of cash by November.
But that’s not the only problem Tesla’s facing right now. Two weeks ago, one of its Model X vehicles caught fire after a fatal crash into a highway median in Mountain View, California. Even worse, Tesla recently admitted that its autopilot system was active during the accident.
• In short, a tsunami of bad news has hit Tesla…
But this storm didn’t come out of nowhere. In fact, regular readers have known about Tesla’s troubles for months.
Last October, I said Tesla’s shareholders would be in for a “rude awakening.” In November, I explained why Tesla could soon burn through all its cash. Then in January, I explained why Tesla’s share price could hit zero. And I urged readers to avoid Tesla at all costs.
Now, I don’t bring this up to brag. Instead, I’m saying this because a lot of folks still think that Tesla is a great investment.
That’s because Elon Musk is telling them that everything will be fine. In fact, the company said on Tuesday that “Tesla does not require an equity or debt raise this year.”
Tesla’s stock rallied 20% on this news. But these investors will soon find out that they’ve been suckered…
You see, Tesla has a nasty habit of breaking its promises to its shareholders. For instance, Musk said in February 2012 that “Tesla does not need to ever raise another funding round.”
Since then, the company has held seven capital financings to the tune of nearly $9 billion.
• In other words, Tesla doesn’t just have a credit problem…
It has a credibility problem.
At this point, you’d be a fool to believe anything the company says. So, continue to steer clear of this stock.
I also encourage you to take a hard look at the rest of your portfolio. Tesla may be the poster child for everything that’s wrong with today’s market. But it’s not the only U.S. stock that’s out of touch with reality.
These days, many stocks trade at sky-high valuations despite losing huge sums of money and being leveraged to the gills.
It’s totally absurd. But this is what happens in the final innings of bull markets.
Investors throw caution to the wind. They believe that nothing can go wrong. But as we just saw, a lot can go wrong very quickly.
So be sure to take precautions today. Here’s how you can do that without jumping out of the market completely…
• Get rid of any “story” stocks that you own…
These are companies that have been bid up to ridiculous valuations because they’re pioneering a new technology… NOT because they have solid fundamentals. In other words, they’re overhyped.
At this stage, you’d be much better off investing in proven companies. I’m talking about businesses that have rewarded shareholders through any environment, also known as Dividend Aristocrats.
These are companies that have increased their dividend payouts for 25 consecutive years or longer. You can find an updated list of these companies right here.
April 5, 2018
P.S. Right now, Tesla is tanking. But that doesn’t mean the EV revolution is over. If you still want to bet on this megatrend, consider speculating on commodities.
To find out why, check out this recent Dispatch. As you’ll see, commodities are incredibly cheap. They’re also a much safer way to bet on the EV revolution than Tesla.
Do you see Tesla going to zero? Or are you picking up shares today?