Tesla’s Wicked Truck Could Be A Long-Term Problem For The Stock

Yesterday, after much anticipation and with a great deal of fanfare, Tesla (TSLA) revealed their truck and the launch went about as badly as a launch could go. The consensus view seems to be that it won’t be a huge success, but whether it is or not, the launch and the surrounding narrative may well have done some damage to the stock that will prove to last longer than the truck itself.

In an attempt to demonstrate how tough the “bullet-proof” vehicle is, Elon Musk had someone throw a metal ball at the window. As I am sure most of you have seen by now, the window shattered. That is embarrassing, but if the vehicle was going to be a success, it wouldn’t be because of tough windows. It would be because the “Cybertruck” as it is somewhat strangely named, represented a viable electric alternative to a conventional pickup. It doesn’t.

Not that there is anything wrong with the vehicle. I have obviously not driven one, but I have driven other Tesla models and it is almost impossible to do so without being impressed. The obvious power and instant pickup of even the most basic of Model 3s is really impressive. It is, however, difficult to see how the Tesla truck will appeal to most truck buyers. They aren’t looking for rapid acceleration and luxury.

Then there is the appearance.

The design of the Cybertruck is, I guess you could say, bold. It resembles a cross between a military Humvee and something from a science fiction movie. They say that the difference between science fiction and fact is often time, but as DeLorean found out with their ill-fated sports car, time is not a luxury afforded to vehicle manufacturers very often.

Even if the Cybertruck is a failure in terms of mass sales, the long-term future of Tesla probably won’t be affected that much. There are numerous examples of corporations launching questionable products but surviving. Ford’s Edsel and Coca-Cola’s New Coke spring to mind, but both of those companies scrapped the projects and moved on. In Tesla’s case though, while one unsuccessful model not hurt overall sales, it will change the image of the company for a while, and with the stock where it is, that could hurt.

TSLA’s P/E and other valuation metrics aren’t based on the company’s ability to make money. They are based on an abiding faith from the stock’s fans that the company can do no wrong. Frequent failures to meet ambitious predictions of profitability can be forgiven if that faith is maintained, and when Q3 earnings showed a profit, it looked as if that faith was justified. Now though, it looks less so.

Faith is, by its nature, resilient, but Tesla’s faith in a triangular truck with “ball-resistant” windows can easily be seen as a misjudgment based on overconfidence. If the faithful start to question the judgement of the company, their belief will be rattled and the focus will shift back to the company’s financials, and that will lead to sustained selling.

TSLA is a volatile stock that tends to overreact to every bit of news, good and bad, then retrace those moves rapidly. That pattern though is based on passion from both sides of the argument. The bears hate and distrust the company, the bulls love it and can see no wrong. This launch will have many of the bulls questioning their assumptions and could give the bears the upper hand for some time to come, making TSLA one to stay away from for a while.