Wall Street is no longer captivated by Tesla’s ultra-risky stock (TSLA, GM, FCAU, RACE, F)

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  • Tesla is expected to post another big quarterly loss for Q3.
  • Meanwhile, stocks of traditional automakers have started to surge.
  • Investors now have more opportunities to pursue growth without Tesla’s risk.


Tesla
will report third-quarter earnings next week, and Wall Street expects them to be terrible. The carmaker could lose more than $3 per share. For the year so far, Tesla has lost a total of about $4 per share.

The company is also burning through billions in cash as it ramps up production of its Model 3 sedan.

But the stock price in 2017 has laughed off these losses: it’s up 57%, and at times has surged toward $400 (it’s now at $337). Tesla’s market cap, at just south of $60 billion, is larger than Fiat Chrysler Automobiles and Ford, and neck-and-neck with General Motors.

Two of the Big Three — FCA and GM — have finally seen some movement on their stock. GM is up 30% year-to-date, and FCA has been rallying since the end of summer and is now up 80%.

Ford has been laggard, down about 3%.

But the Detroit giants have been posting steady profits for years, as a boom in SUV and pickup-trucks sales drives the US market.

The tricky thing here for the sector is that the forces that would push GM and FCA shares down are already known: a sales downturn or rising gas prices, which would lower demand for pickups and SUVs. There are very slight indications that the downturn is coming, although with record sales years in 2015 and 2016, and 2017 shaping up to more or less match the pace, the sales cycle appear to be extending beyond what anyone expected.

(The South American market has been improving after years of stagnation, and that’s often a counter-cyclical predictor of weakening US sales.)

Ford has nowhere to go but up — its sluggish stock price is less about fundamentals than it is about the company’s struggle to tell a futuristic story that’s all about self-driving and electric cars. 

Tesla is no longer the only growth play

For investors, Tesla was the only growth play in town, but the dynamic has now shifted. Since September, markets have pivoted away from the Palo Alto-based company.

GM in particular looks as if it will exert a much bigger impact in autonomous mobility and electrification than Wall Street anticipated. With that embedded discount how removed, and Tesla failing to scale Model 3 production, an interesting new pattern could define the fourth quarter.

This is quarter when Tesla in the past has slid and slid hard. Wall Street give the carmaker the benefit of the doubt for most of the year, but reality sets in late in the calendar and a sell-off ensues. This happened last year as Tesla was acquiring SolarCity; investors didn’t like the negative impact on Tesla’s balance sheet and dumped the stock. 

It recovered robustly in early 2017 and maintained the surge ahead of the Model 3 launch. 

But that was when the traditional automakers looked unappealing. However, with their shares moving north and no major sales weakness taking shape, the risk premium for Tesla doesn’t appear as inviting. 

Investors could be late to the game, of course. With GM at post-2010-IPO highs, it’s unclear whether the momentum can be maintained. FCA is living on SUV and pickup sales. And even Ferrari, up 96% in 2017, is running out of catalysts (unless the company stuns the world and announces an SUV). 

But for Wall Street, it’s no longer possible to neatly divide the auto sector into the fading past, represented by the Big Three, and the thrilling future, symbolized so unpredictably by Tesla.

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