Who’s the LOSER in the energy metals boom?

For weeks now, I’ve been telling you how we have a supercycle in energy metals. This is fed by the electric car megatrend.

There will be some pretty big winners in this supercycle. But today, I’m going to tell you about a big loser. And dollars to donuts says you don’t guess which one …

The problem is, you see, there can be too much of a good thing.

I’m not talking about lithium … or cobalt … or any of the energy metals themselves. I’m talking about a company riding the other side of that big trend …

Tesla (Nasdaq: TSLA).

Tesla is the world’s hottest maker of electric vehicles (EVs), right? And the world is shifting to electric cars. This shift reminds me of how the world changed when internal combustion engine (ICE) vehicles replaced horse-and-buggy transport at the beginning of the 20th century.

Now, the “ICE age” is ending. Gasoline engines are on their way out. EVs are on their way in.

So why the heck is that bad for Tesla?

The Only Girl at the Dance
Now Gets Some Competition

Well, Tesla used to be the only girl at the party. Everyone wanted to dance with Tesla. But now Ford, General Motors, Toyota — they’re all putting on their dancing shoes.

And once the room is filled with dance partners, how is Tesla supposed to compete?

Answer: It can’t. At least, not the way it is now, as some kind of “Willy Wonka” Chocolate Factory for the EV set. Elon Musk is a visionary. But he runs Tesla like his own little hobby shop.

You see, Musk isn’t focused. He builds cars, sure. But he’s also working on a new transportation system called the Hyperloop. He builds Space-X rockets, too. Heck, he’s offered to rebuild Puerto Rico’s power grid with solar energy.

Rebuilding Puerto Rico is a worthy goal. But it’s also a big distraction when other car makers are getting up every morning, planning how they’re going to out-Tesla Tesla.

And it might not take a ton of effort to do just that …

A Great Job of Losing Money

Musk is very good at building beautiful electric cars. But he’s even better at losing money.

Tesla burned through more than $1 billion in cash in the second quarter. Meanwhile, it has nearly $20 billion in liabilities on its balance sheet.

Colin Rusch from Oppenheimer estimates that Tesla will need $12.5 billion in financing through 2018. At the end of last quarter, Tesla had $3 billion in cash, and it has forecast capital spending of $2 billion by the end of this year alone!

Production bottlenecks are holding up Tesla’s new Model 3. Tesla said it made only 260 Model 3s in the third quarter. That’s three cars a day. The company had promised 1,500 Model 3s.

It’s not all bad news. Across all its models, Tesla made 26,150 cars in the third quarter. That’s up 17% year-over-year.

But it’s still a drop in the bucket. Here’s why:

In all of last year, Tesla made 84,000 cars. That’s about 230 cars a day. Meanwhile, GM made 27,000 cars a day last year. In other words – GM makes more cars and will make more electric cars than Tesla at the current rate.

Then, Tesla pushed back its EV truck launch. Why? Delays on the Model 3 and battery production for Puerto Rico.

You can see how these delays can snowball.

Detour to Disappointment

This string of disappointments didn’t stop Morgan Stanley from recently upgrading Tesla. Morgan Stanley says Tesla’s recharging infrastructure gives it an edge. Maybe so. I think the optimists are doomed to disappointment.

Why? Because, as I said, other car makers aren’t sitting idle.

Let’s take GM for example. GM just announced plans for 20 new all-electric models by 2023, including two within the next 18 months.

What’s more, GM just bought Strobe, a California tech company that’s done a lot of work on self-driving cars. With this purchase, GM might leapfrog not only Tesla’s self-driving car goal, but Google’s as well.

Meanwhile, Ford plans to add 13 electric models over the next several years. It’s investing $4.5 billion in the program.

Or how about Volkswagen? It’s the biggest car manufacturer in the world. It plans to offer 80 new electric car models by 2025. And it plans for its entire line to be all-electric by 2030.

Let’s look at a chart of how major auto makers performed over the last month.


Tesla has been on a wild ride. But it’s doing worse than Volkswagen. And the German car-maker is facing $1.8 billion in annual penalties from the European Union for cheating on diesel emissions.

I’d say Volkswagen has a good excuse for underperformance. But what’s Tesla’s excuse?

Don’t get me wrong. I would love Tesla to be wildly successful. It would inspire other people to attempt the impossible. But right now, Tesla’s path seems filled with danger signs. So here are my four recommendations:

Recommendations #1. If you own Tesla’s shares, look for an opportunity to unload them. If you don’t own them, good. Stay away for now.

Recommendation #2. Definitely hitch a ride on the EV megatrend! Just make sure you use the right investment vehicles.

Recommendation #3. Get on the positive side of the cycles behind this megatrend. You want the investments that will be driven UP by the powerful cycles we’re tracking. You don’t want the investments that will get smashed by them.

What are the right investments? How can you get on the positive side of the cycles? Exactly WHEN will be the best time to buy?

Recommendation #4. For all the answers, attend our Supercycle Investment Summit. To register, go here.

All the best,

Sean Brodrick

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Comments 5

  1. speakin' Slow thinkin' Fast October 11, 2017

    Hello Sean……..I’m betting on Tesla and Elon have something the other fading…….auto makers don’t have..it’s called VISION, they will forever be playing spend$$$ to catchup….I’m just sayin’

    Reply

    • FrankZ October 12, 2017

      Interesting comment. Elon may have a vision,….but he has too much hay on his fork. He needs to get down to basics…..and fix the current production problems, …..before “dreaming-up” new ideas to fix the worlds problems.
      Bottom line, …..the investors would like to see some positive return on their investments…….No business can go on very long by losing…….

      Reply

  2. Robert Schubring October 11, 2017

    GM already tipped it’s hand years ago when it moved it’s gearbox business, Allison Division, into a separate company that IPO’d. They’d known since the 1940’s that running a diesel railroad locomotive with electric drive motors, gave better control of traction, than using a gearbox. Cars, pickups, vans, and tractor-trailer rigs kept their gearboxes for 70 years, because copper was pricy and railroads could afford to own lots of it in every locomotive. And because drivers were used to jamming gears.

    What’s coming now is a flat-out abandonment of gearbox technology. Automatic transmissions that shift the gears for the driver…and manual transmissions with a clutch for your left foot, are shortly becoming obsolete. An electric generator and electric drive motors can both be put under computer control.

    Once everything switches over to hybrids, then, suddenly, powering hybrids on renewable ethanol will become the Next Big Thing. That’s because it makes more sense for a hybrid to have a tiny engine running on high-octane fuel, than to have a big engine running on low-octane fuel. E85 Ethanol is 106 octane. Regular gasoline is 87 octane. Higher octane, higher engine power, lighter smaller engine makes same power. And the battery business will change again.

    Reply

  3. James October 12, 2017

    Electric cars are the future of motor vehicles. Battery powered is surely more environmentally friendless than oil or diesel, as I remember from my environmental economics classes, the Kyoto protocol was introduced in the 1990s, in order to vastly reduce the amount of co2 emissions by cars. Electric cars are the future because theirs no emissions from them. The future is green and environmentally friendly.

    Reply

  4. Neil Mann October 13, 2017

    Is the upcoming “Summitt” for existing Supercycle members, or sales pitch for potential new members?

    Reply