Chinese sales won’t save Tesla’s overvalued stock: fund manager

The ups and downs of Tesla (Tesla Stock Quote, Chart, News NASDAQ:TSLA) over the past couple of months have been a sight to behold, but for anyone thinking of buying the stock in its current price range, fund manager Teal Linde has two words for you: too rich.

“Tesla is a stock that we bought in 2012, just as the Model S was starting to roll off the assembly line. When I recommend the stock, I couldn’t even find a picture of an actual Tesla, so I had to use an artist’s rendition to give my clients an idea of what it looked like.

So we got in really early,” says Linde, president and founder of Vancouver-based Linde Equity, who spoke to BNN Bloomberg on Tuesday.

Linde says Tesla’s been running on momentum for a while now and doesn’t really have the growth runway to deserve the share price markup.

“The stock was at $30 and then it went up to about $300, where it was about a year or two ago. But what happened was that their sales in the United States have been flat since 2018 and so we thought, well, it’s this is probably a time to exit the stock,” he said. “Now it has run up considerably higher on expectations of sales into China.”

“But the stock got to $300 based on their success in America. And now the stock’s at $800, so that’s $500 of additional share price appreciation based on anticipated success in China and to an extent Europe where they’re planning to build a plant. I just think that’s a bit too much optimism placed into the belief that there’s going to be more value in the stock because of what’s going to happen in China.

Just a year ago, the skepticism over Tesla was fairly high, with the double-barreled criticism that not only was their doubt over whether the company could meet its own production goals but profitability was a worry, not to mention the volatility of Tesla’s mercurial leader, Elon Musk, who kept getting press for all the wrong reasons.

But the company has since impressed with now three consecutive quarters of profit, including last month’s first quarter 2020 results which saw Tesla earn $16 million or $1.24 per share on $5.985 billion in revenue.

That success has buoyed the stock to new heights this year, with the market pullback in February and March now almost fully recouped and TSLA hovering around the $800 mark for the past couple of weeks.

But Linde said there are a couple more numbers to keep in mind: 21 million and 17 million.

“People talk about [China] as the largest auto sector or auto market in the world, but they sell about 21 million cars a year and that’s not much higher than the 17 million that are sold the United States,” Linde said.

“I’ve also witnessed in my travels to Asia and lesser so in Europe that Europeans and Asians, they seem to have much greater affinity for buying cars and brands from their home country,” he said.

“And so while Tesla did very well United States I’m not prepared to bet that they’re going to have just as much success in Asia and Europe, particularly when those, those regions have a lot of other competition from other auto brands that are already making electric vehicles,” Linde said.