Saturday, April 7, 2018

How Low Can Tesla Go?

        Given my writings on Tesla, a common question I am asked is how low can the stock price go.  To answer the question, let me first put aside the possibility of a takeover.  In that case, zero comes into play.  Tesla has over $10 billion in debt and it is not clear that the company is worth more than that as an operarting entity.  Yes, the company's cars have been a great innovation, but so was air travel.  And as Warren Buffett observes virtually every airline went bankrupt.  Tesla has not proven that it can profitably make, sell and service cars so bankruptcy is something to worry about.

         However, I do not think it will come to that because before the company collapses someone with deep pockets and a lot of cash, think Google or Apple, will buy it.  Given Tesla's brand name and technology, a company with sufficient resources and greater focus on the blocking and tackling of doing business should be willing to buy it - but not at anything like $300 per share.  In my view, $100 per share would be the most a buyer would be willing to pay and $50 is more likely.  So if you ask how low Tesla can go, my best answer is $50 per share.

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