Tesla Is Waving More Red Flags Than a MatadorTSLA) is, the company’s business model is unsustainable…at least for now. Tesla loses millions of dollars every quarter, has high debt, and obviously has negative cash flow. Clearly, the stock is currently overvalued no matter how you look at it.
The recent potential acquisition of SolarCity (SCTY) has further strengthened the Tesla bear case. Like Tesla, SolarCity also bleeds money every quarter and is highly leveraged.
However, if these red flags weren’t enough, there is another big reason to be bearish on Tesla. A lot of senior executives have VPs have left Tesla this year, and this paints an ugly picture of the EV maker’s future. As per reports, 10 senior executives have left Tesla this year. To put into perspective, that’s roughly one executive every twenty days in 2016. Suspicious.
Multiple executives leaving a company in a short period of time is always a sign of bad things. But when it comes to a highly-leveraged and cash flow negative company like Tesla, investors should get their guards up.
Generally, senior executives tend to be the most well-paid individuals in a public company. Despite not doing their jobs nicely, executives tend to get paid handsomely, which is why they tend to stay at a public company.
Given that many senior executives are leaving Tesla, it is safe to assume there may be something about Tesla that they know and retail investors don’t. It is highly likely Tesla executives know that they can’t continue milking the cash cow for very long and are looking to exit the company before things go south.
Legendary short seller Jim Chanos said the flight of executives from Tesla reminds him of the shakeups that preceded Valeant's plummet. Valent’s stock has plunged 90% since executives at the company started fleeing, and Tesla could follow the same path soon.
It is not normal to see multiple high-paid employees quit their jobs within a short period of time. This doesn’t happen unless there is something very wrong with the company. Hence, I would advise Tesla investors to stay cautious.
Even without the departure of the executives, Tesla would make for a terrible investment due to its fundamentals. The departures just make the bear case for the company stronger, and I think investors should sell the stock before things turn ugly.
Published on Jul 12, 2016By Akshansh Gandhi