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October 11, 2017 | Who’s the LOSER in the Energy Metals Boom?

Sean Brodrick

Sean is the natural resource analyst. You can read his thoughts on gold, oil and other natural resources at EdelsonInstitute.com

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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October 11th, 2017

Posted In: The Edelson Institute

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