The Most Dangerous Stock to Own is Tesla

During the initial phase of the U.S. occupation of Iraq after 9/11, Secretary of Defense Donald Rumsfeld gave a speech to troops. In it, he said:

There are known knowns. These are things we know that we know. There are known unknowns … things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.

Those “unknown unknowns” could have a profound impact on the future. But you can’t incorporate them into your decision-making.

This makes unknown unknowns particularly dangerous to investors. Your portfolio could be sailing along nicely when suddenly something happens that you didn’t anticipate.

At best, you could lose some previous gains.

At worst, you could suffer a complete round trip.

Last week, strategists at Blackstone released their annual list of “10 Surprises.” These are things that most investors aren’t thinking about … but could happen this year.

That gave me an idea.

I’ve long been bearish on Tesla (Nasdaq: TSLA).

Yes, the stock has appreciated dramatically in the last two years. But those gains are purely speculative. They’re not based on a rational analysis of the company’s business prospects.

TSLA is a stock that’s priced beyond perfection.

If ever there was the time to review unknown unknowns, this is it.

A Precarious Position

Whenever I think about an overpriced speculative favorite, I think of the Grinch with all of

Whoville’s toys at the top of his mountain.

A lot can go wrong in that position.

TSLA is in that position.

Consider a few random facts:

  • The company’s market cap increased by $500 billion last year. At $800 billion, it amounts to over $1.6 million per car sold in 2020. For General Motors, that figure is $9,000 per car.
  • Tesla is now worth more than Volkswagen, Toyota, Nissan, Hyundai, GM, Ford, Honda, Fiat Chrysler and Peugeot combined.
  • It holds 18% of the global electric vehicle (EV) market, but only 0.5% of the global auto market.
  • The next three companies by EV market share (Volkswagen, BD and BMW) sell as many EVs as Tesla does.
  • The company’s increased sales in 2020 were entirely due to its new China operation. In Europe and North America, its sales collapsed by 32% and 38%, respectively. As EV investors know, the Chinese market is crowded with competitors, including NIO (NYSE: NIO)XPeng (NYSE: XPEV) and Li Auto (Nasdaq: LI). All those companies are producing vehicles that cost less than a Tesla.
  • At its current price-to-earnings ratio, TSLA investors will have to wait 1,767 years to see their investment rewarded by earnings.

I could go on, but you get the picture.

Not only must everything go perfectly for Tesla’s current plans. Nothing unexpected can happen either.

Tesla’s Unknown Unknowns

With that in mind, what could upset Tesla’s applecart?

Remember, this is just speculation. But it’s informed speculation. All these things are perfectly possible.

  • Congress passes a series of stimulus and infrastructure spending bills in February and March. Markets react to the expectation of resulting inflation by selling long-dated bonds. Interest rates rise across the board, significantly reducing the attractiveness of growth stocks, including TSLA, which suffers a 20% sell-off.
  • A small research and development company announces a breakthrough that reduces the cost, weight and size of EV batteries. It turns out that the company has prior agreements with several EV makers, who announce plans to use its technology, dramatically reducing the cost and improving the performance of their products. This leads to another significant TSLA sell-off. By the end of the year, Tesla is under substantial pressure for market share, especially in China.
  • Investors pan Tesla’s Battery Day in September, noting that, for the second year running, the company has no significant advances to report. Instead, CEO Elon Musk doubles down on his plans to focus on lithium mining and manufacturing batteries in-house. Noting the implications for cash flow and profitability — current margins are only 1% — investors sell TSLA for another 20% decline.
  • Despite the sell-offs, Musk decides to build market share through acquisition, launching a bid to buy Volkswagen. VW rejects the bid. Musk reacts with a series of increasingly unbusinesslike tweets. The Securities and Exchange Commission concludes that Musk has violated his agreement with them. Tesla’s board steps in to relieve him of some of his responsibilities. The market reacts with yet another sell-off.
  • By the end of the year, Tesla has lost 70% of its market capitalization.

The Bigger They Come, the Harder They Fall

Reggae great Jimmy Cliff made a great point with his 1971 hit of that name.

It’s true. Look at this chart of Microsoft from mid-1998 to mid-2000:

MSFT Stock Chart 1998-2000

During that period the company didn’t do anything wrong.

It just got caught flat-footed by a bunch of unknown unknowns that added up to the dot-com bust.

So, as we start a new investing year, it’s the perfect time to scan the horizon for unknown unknowns in your own portfolio.

You might want to start with positions that have appreciated dramatically in a brief period without the fundamentals to support that in the long run. Tesla is one example.

After all, as Jimmy Cliff sang, “the bigger they come, the harder they fall.”

Kind regards,

Turn Your Images On

Ted Bauman

Editor, The Bauman Letter

Previous Post
Next Post



Incredible! This blog looks just like my old one! It’s on a entirely different subject but it has pretty much the same page layout and design. Great choice of colors!

slot online judi

Hello! This is my first visit to your blog! We are a collection of volunteers and starting a new project in a community in the same niche. Your blog provided us valuable information to work on. You have done a outstanding job!

buy concerta tablets 18mg 27mg 36mg 54mg with imprints alza from a genuine online pharmacy without prescription and free overnight delivery

750135 423756Spot up for this write-up, I truly feel this exceptional internet site requirements a great deal much more consideration. Ill a lot more likely be once once again to read considerably a lot more, thank you that information. 69542

two couples sex games

sex games to do with your husband

casino online portugal

rivers online casino real money

raging bull casino online slots

parx casino online

online casino real money

best usa online casino 2021

lucky casino online

admiral casino online

casino online stream

motor city online casino

harrah's online casino

bitcoin online casino

keto crockpot

vegetarian keto meal plan

keto delivery

keto diet for diabetics

writing essays about literature

essay writing company

gay ostomate dating site

eharmony gay dating site

professional gay men dating

gay dating south jersey

critical thinking and analysis

interview questions critical thinking

are you a critical thinking questions

history of critical thinking

steps to writing an essay
personal narrative essay examples

in this essay i will

college essay examples

good essay hooks

research essay

outline for literary analysis essay

essay helper free

essay transition words

gay dating sites defiance ohio

gay black latino dating

athletic gay dating sites

reviews of gay dating web sites

gay mature men dating site in palm springs california

what’s the best site for finding a gay dating site for women

gay and bi chat and hookup

free gay/bi chat

gay dating sites for seniors

gay tiny micro dick dating


178348 77359Maintain up the wonderful piece of function, I read few posts on this internet website and I feel that your blog is actually interesting and holds bands of fantastic details. 415856

Leave a Reply

Your email address will not be published.