The Tesla Cybertruck is definitely the most polarizing vehicle ever. It has only been revealed less than a week ago and it has already been criticized as being ugly. And more than 200k people pre ordered one. What does this mean for Tesla and for the stock price?
The Cybertruck
I won't go into technical details about how good the Cybertruck is compared to other trucks. I'm sure you can find them somewhere else. But in general, I'll just say that there is no similar vehicle that can compete with the Cybertruck on the market today and it is unlikely that there will be any when they will be delivered in a couple of years.
As far as the shape of the Cybertruck is concerned, it looks futuristic and let's admit it 'ugly' and it's not because Tesla designers could not make a better truck but because of the material they used(the same used for the SpaceX rockets). It would cost a lot of money to change the shape of the stainless steel and that would have considerably increased the price of the truck. To be able to sell it for $40k and still make money from it, they had to make it in that weird shape. There's another reason why I believe, it is weird. It is different. It is different and people are talking about it. I'm not a car fanboy and I cannot differentiate between a Ram pickup and a Ford F-250. They all look the same to me. But the Tesla Cybertruck is different and you cannot ignore it. You have to talk about it. This is free publicity. It is ugly? Good. People are talking how ugly it is. This is something coming straight from Donald Trump's The Art of the Deal. Be controversial. Even when Elon Musk tweeted about the orders, he mentioned that they didn't pay for advertising. They didn't have to.
If it is so ugly, why are people reserving? Well, because it is so easy to order one. You just need to pay $100, which is refundable. You can just order one and share a screenshot with your friends and show how cool you are. From 200k reservations, Tesla just got $20 million extra cash. It is a sort of loan with zero interest. Even if people are going to ask for a refund in a couple of years, they can just repay the loan. I know what you may be thinking, $20 million is not that much. Actually Tesla can make much more money than that. To understand how, we should look at the Model 3.
Will history repeat itself?
In April 2016, Tesla revealed the model 3 and got 325k reservations in a week.
The stock price of Tesla was $240 when the Model 3 was revealed and today it is about 35% higher.
With the model 3, the minimum initial deposit was $1000. Therefore, $325 million as a loan. Again not much.
Actually, it is not only the stock price of Tesla which rose by 35% since the Model 3 was revealed but also the number of shares outstanding.
Tesla was able to take advantage of the hype behind the Model 3 and the hike in stock price to raise capital.
The company raised over over $13 billion just issuing new shares in the last two years as can be seen on the cash flow statement of the 2018 10-K form
This is common business practice and this is why many companies choose to be public as they can always raise capital by diluting shares. Amazon and Salesforce are known to do that to compensate employees and avoid taxes. As for Tesla, the company doesn't have yet such a great balance sheet as Amazon or Salesforce and Elon Musk himself have stated so many times in recent years that the company was "days away from bankruptcy". Issuing stocks to finance the company is a good idea. But if you are a Tesla shareholder, you should be careful with that since all the revenues and earnings of the company are being diluted.
In the last 5 years, Tesla market cap gained 114% while the stock price gained only 49% and that's because they diluted the shares by 43%. You would have been better off investing in the S&P 500.
Is the same thing going to happen with the Cybertruck? Most probably. Elon Musk is a great salesman and he is able to sell his dreams to investors. If it was not for him, this company would have been bankrupt. He knows how to use his influence and his fame to raise capital. Sometimes, he even got into troubles with the SEC for being outspoken.
Conclusion
It doesn't matter whether, the Cybertruck is a success or not. We will only know after 3-4 years. But in the meantime, the fact that we are talking about it gives Tesla leverage. They can raise more capital and do other things such as producing existing models, build new factories. There is, however, one thing, you should never forget. You always need to discount the future. Even if Tesla sells 200k Cybertrucks in 2022, this is future revenues and future cash flows. Money today has more value than money tomorrow. If you want to know if Tesla is a good investment in my opinion, you can read the full Tesla analysis here.
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