The Probability of Tesla Going Bankrupt

Don’t take advice from people who don’t have to live with the consequences. With all the other media talking about Tesla (TSLA) exploding, that’s exactly why it’s worth taking a close look at the value proposition. A proper assessment of the risk associated with the stock requires leaving aside the ethnic political beliefs and the tendency to enter into petty arguments at the door. Successful investors are opportunists who look beyond all the noise and emotion to find deep value where others are afraid to look. And in today’s bear market, survival is just as important as prosperity.

Pointing to Tesla’s price drop without a benchmark is a rookie move. Here is a yearly performance for Tesla using several brands.

  • Nasdaq Tracker ETF -32%
  • Google: -37%
  • Tesla: -57%
  • ARK Innovation ETF stock price history -66%

Despite the demand for ARK’s ETF holding a 7.5% weighting in Tesla, it’s still a basket of tech stocks that are falling. -66% year to date. To say that Tesla stock is falling seems like an overstatement, especially when you consider the high beta. A higher beta stock is expected to move more aggressively than the benchmark. When the episode went to the moon, no one had a problem with the high beta. But when they see the same negative action, the world will suddenly end. With the largest owner selling shares, pressure on Tesla’s price should be expected.

Investors in Tesla stock, or potential investors, should be surprised that there are quality assets for sale. The only concern is Tesla’s survival in the face of falling share prices, regardless of the reason for the crash. Let’s take a look at how Tesla gets its money and where it comes from.

What Tesla is doing

We haven’t written about Tesla all the time because the last thing the world needs is another opinion about Tesla. As with many fanboy stocks, experts often have so much insight into so many aspects of the company that it’s hard to find a simple explanation for how Tesla makes its money. . We’ll use the latest 10-Q as the basis for today’s analysis.

Credit: 10-Q

Electric vehicle sales account for 95% of the company’s revenue, half of which comes from the United States. Americans who make Tesla cars for a living may not buy Tesla cars, if they are aggressively attacking the brand as much as possible, so there may be a drop in demand in the United States that comes from half of the company’s revenue. Tesla. If we’re in a recession, let’s say there’s a drop in demand, and income growth slows down. The same is true in China, where demand is said to be slowing and competition is intensifying. Given these assumptions, what problems could Tesla face that would require them to raise money by issuing cheap cash, or through debt?

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Thinking about it

Although Mr. Musk spends significant time with Tesla and is very active in our management, he does not devote all of his time and attention to Tesla. mr. Musk currently serves as the Chief Executive Officer and Chief Technology Officer of Space Exploration Technologies Corp.

Credit: Tesla 10-Q

The legitimate concerns raised by many people around the mind of Elon Musk paid for his last company, Twitter, a company that we think can survive, and maybe even thrive. But really, is Mr. Musk without distractions? In fact, it is said to be a threat in the company’s SEC filing where they note that he is the CEO and CTO of SpaceX. Then there’s the perfume shop, the flame, the boring giant hole, the brain-computer interface development, and Zeus knows what else.

Credit: Business Today

Let’s say Mr. Musk pulls an Any Winehouse and remains unchanged from the Tesla equation. The stock will explode in no time, the CEO will be replaced, and life will go on. In fact, there’s a good argument to be made that Tesla should find a new CEO now that it’s firing up all four electric motors.

Perhaps it is difficult for experts to separate Elon Musk’s behavior from the daily work at Tesla. For example, there has been a lot of focus on Musk’s recent sales

He is Tesla’s largest shareholder with a 13.4% stake, according to financial market data provider Refinitiv. Last month, Mr. Musk announced that he sold his 19.5 million Tesla for $3.95 billion, just a few days after he completed the $44 billion sale on the social media platform Twitter.

Credit: BBC

Let’s put it in context. The value of this sale represents 5% of the total assets of Mr. Musk at the current price. Having a large portion of one’s wealth tied up in a company’s stock justifies more sales. This will put downward pressure on share prices.

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Mr Musk is now playing a difficult juggling game with his own cash to reduce debt payments at Twitter, a company he owns 74% of. When we consider Tesla, we need to remove the personal financial decisions of Mr. Musk on what is happening in the company. So what happens if Mr. Musk?

An article by Bloomberg says that Mr. Musk borrows money at a loan-to-value rate of 20%. This means that the stock has to sink further before it is at risk of a bearish call. Such actions may result in an automatic sale of stocks in a common brokerage account, but one would expect that at the institutional level the behavior would be different. A large downgrade puts a lot of downward pressure on a stock’s price, so it’s in the lender’s best interest to go slower. The big question is around the impact of Tesla if Mr. Musk. Putting more selling pressure on the stock price doesn’t seem like much of a risk for Tesla if Mr. Special Musk.

Our take on Tesla

Two and a half years ago, I wrote an article entitled This is why short sellers are shorting Tesla at that time it was trading around $110 a share simple valuation rhere (SVR) on 14.5. Four months earlier, the share was sold at $ 30 representing an SVR of 4. Now, the trade is divided by SVR of 5.5.

  • $475 billion market cap / (Q3-2022 revenue X 4)
    475 / (4 * 21.45) = 5.5
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If Rona is trading at the same valuation as Rona has been for a short time on Wall Street, shares have been trading around $108. So there’s certainly room for worse, and the media frenzy surrounding Musk’s sinking gold barge needs to be taken with a grain of salt.

We’ve listed Tesla as an equal in our tech stock catalog, even though it’s too big a company to fit into our disruptive technology investment strategy. Once a company reaches a certain size – over $100 billion – we start looking at reducing our profits. Google was a company we invested in at a $23 billion market cap and eventually became one of the largest companies in the world (we got out of our seats when they got deep into politics and started hiring cartoonists). We don’t have a dog in the Tesla race, but we know many of our readers and customers do. Tesla’s shares are trading at historically low valuations and the drop in share price doesn’t diminish the company’s chances of survival regardless of the bear market. . The probability of Tesla going bankrupt seems very low.

Conclusion

Almost half of our listeners are from abroad, which means they look very closely at US politics. Saying anything about Elon Musk means a political statement, so we need to separate the man from his biggest company, Tesla. He’s always busy focusing on Tesla, whether it’s selling perfume and flares, digging huge holes, reading monkeys’ minds, or shooting rockets that can be used in space. Is the added distraction of Twitter breaking the camel’s back? Maybe, but Tesla seems to be in good financial shape to weather any storms from blue earth or otherwise.

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