An Inconvenient Truth: Tesla Is Operating By the Seat of Its Pants

Good Lord, what is he doing now?

That is a question I frequently ask myself when attempting to analyze Tesla Inc. (TSLA) . I have never seen a consumer products company that so bizarrely handles the marketing of its products. And I have been following autos and observing -- and often investing in -- companies in a broad variety of other consumer sub-sectors since Elon Musk was an undergraduate at the University of Pennsylvania.

The latest news, announced Thursday night via -- what else -- a blog post, is that Tesla would stop accepting online orders for the $35,000 version of the Model 3. While that configuration can still be ordered via phone or in one of Tesla's stores (and weren't they planning to close all those stores as recently as a month ago?) according to The Wall Street Journal, the cheapest version of the Model 3 available for online purchase runs $39,500. That is 13% more than Musk's much-hyped "$35k EV for the masses."

Also, Tesla has introduced a leasing option for the Model 3 -- a very important sales tool in the entry-luxury car segment -- but has done so in the most bizarre way possible. Leased Model 3s can only be driven 10,000-15,000 miles annually, as those cars are intended to be used in the as yet nonexistent ride sharing service, Tesla Mobility. That planned re-use also means that there is no purchase option for customers at the end of the lease contract.

Without getting into the minutiae of capitalized cost reductions and residual values as they relate to lease math, I can simply say that that a lease with no purchase option at the end is NOT a car lease. But that's how Tesla is doing it. Because Elon wants to, apparently.

There is no conclusion to be drawn other than this company is operating by the seat of its pants, and those pants would seem to fit only one man, its mercurial CEO. This is no way to run a $46 billion public company. The fact that TSLA shares once again fell Friday  -- on a green day for the Nasdaq -- shows that the market is realizing this inconvenient truth.

Tesla's first quarter was incredibly challenging from a deliveries standpoint, and the market will get the final, gory details when the company reports earnings on the afternoon of April 24. The bond market has been warning us about Tesla's leaky balance sheet for quite some time, with Tesla's benchmark 5.3% 8/2025 bonds languishing below 86 cents a share and yielding 8.3%.

The sell-side analysts following Tesla -- some of whom I know from my old days following autos -- are slowly coming around to this reality, and analysts from Goldman and Morgan Stanley have been notably bearish on their Tesla price targets of late, while even bullish analysts like those at Jefferies have reduced price targets in the past two weeks.

So, who is left on Elon's side? I really am tempering myself here, but I have never seen a confederacy of dunces as clueless as the Tesla perma-bulls who pop on CNBC. I am restraining myself from naming names, but if TSLA shares keep falling, I will have to.

Selling cars is a brutal business globally, and I have spent my entire adult life learning that. That's why car companies are chronically afforded low valuations. It is what it is, except in Tesla's case, where it apparently is what it isn't.

Tesla is trading at 211x the Street consensus for 2019 EPS. This is a year with no major product launches. Forget all this "production/delivery/whatever hell" stuff that Musk spews. The Tesla you are looking at today is the same as the Tesla that you will be looking at one year from today: cash flow negative.

If you want to buy a Model S (an awesome car to be sure, but one that is being brutally cannibalized in the marketplace by the Model 3), go right ahead, and you will enjoy driving it.

If you want to buy Tesla stock -- or invest with those who do -- you should have your head examined.

I just can't put it any more clearly than that.

At the time of publication, Collins had no positions in any securities mentioned.