Shelby McFaddin, an investment analyst at Motley Fool Asset Management, spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
ANDY MILLS (AM): The stock has gotten beaten up pretty badly recently. Should people be buying Tesla stock right now? Is this a ‘buy low’ moment for them?
SHELBY MCFADDIN (SM): Well, it sort of depends on what their goals are for their portfolio. So if you’re interested in having a company that produces fully electric cars because that aligns with part of your investment philosophy for where you wanna see the world go, then surely you could consider it. But if you are wanting to purchase what we consider to be high quality stocks, where you’re basing them off of the quality of management team, their competitive position, where they’re going, what their trajectory looks like, and really the economics of the business, are they either already generating a lot of cash or it’s in their future soon to do so. If that’s not checking those boxes, which for our team at this time, Tesla does not, it’s not something that we consider adding. But if it does check different boxes for different investors, then it could be an opportunity to go ahead and buy the dip for active portfolios.
AM: Tesla missed on their deliveries for the quarter, what’s going on?
SM: I think for Tesla, part of it’s that they’re having to reckon with the fact that there’s some more real competition now for a while, especially when gas prices were really elevated that was the primary manufacturer for electric vehicles and even there was a delay with Tesla, but now they’ve got a lot more competition and consumers have had time while car prices were super inflated to do their research. So the competitors are either, they’ve been there for a while and they’re sort of sleeping giants that are awake, consumers are just finding out about them and all the global supply chains are largely back in order when it comes to automotive. So I think that’s part of the issue that they’re facing, is simply that if you want a fully electric vehicle and you want a luxury electric vehicle, Tesla’s no longer the only option.
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AM: Who is the competitor that’s nipping at their heels right now?
SM: I can’t say exactly in terms of numbers, but I would have to say that Polestar and Rivian are definitely showing their teeth. And then when we wanna be a little bit more economical, we can look at places like Volkswagen. The ID.4 is really popular in picking up speed in the us. I wanna say that Hyundai has made a few Ionics. Those are fully electric. We’ve even seen Chevy start to come up with some electric vehicles. So there’s a lot to choose from on quality, luxury and also just the income affordability scale. And I think that’s something that they’re having to grapple with.
AM: This isn’t an issue of everybody that needs an electric car has already got one, it’s just there’s more competitors out there, right?
SM: Yes. And you know, folks being able to now say, you know, I might be able to afford a full EV because they’re understanding that Tesla is not the only option. And also understanding that it might not always be the most reliable option and realizing that there are different features that you can get on other cars, not having to potentially deal with any of the software issues or maybe something as simple as just wanting a different look on the vehicle.
AM: So how does Elon fix this problem?
SM: Well, it’ll have to start operationally, right? There’s certain levers that you can pull to try and change, and some of that comes from changing the design, which is inexpensive overhaul, changing their advertising efforts. But the next best thing for them to do is look inside when it comes to cost and operations and figure out how they’re going to deliver on the bottom line in the short term when they need to sort of do a demand overhaul for the long term,
AM: Is he going to have to micromanage Tesla again? Does he have to get in there and just change things around what’s going on?
SM: If it happens that he is the operator that has the most capacity and the best ability to do so, then yes, shareholders will expect him to step back into the helm. But if when they pop the hood on the board and everything, and maybe he’s not the key, then they might not make that demand. What they could demand and what we have seen in the recent past is, you know, answering some questions about his compensation. So it may be that they are not necessarily expecting him to fix it, but they might change their expectations and what they’re willing to pay for what he is providing them in terms of solutions.