Tesla Needs to Get Its Act in Gear

In this episode of the MarketFoolery podcast, host Chris Hill chats with Million Dollar Portfolio's Jason Moser and Stock Advisor Canada's Taylor Muckerman about the market's biggest stories.

Tesla (TSLA 2.16%) is in the midst of a series of bad days, and while this serious drop in its stock price could present a buying opportunity, the company still has some major risks to address. Under Armour (UA -2.04%) (UAA -2.26%) announced a data breach that affected 150 million MyFitnessPal users, but don't lose too much sleep over it. Apple (AAPL 0.16%) CEO Tim Cook caught some attention recently by throwing shade on both Facebook's (META -11.40%) data breach and Amazon.com's (AMZN -2.11%) HQ2 competition. Tune in to find out more.

A full transcript follows the video.

This video was recorded on April 2, 2018.

Chris Hill: Alright, we're back. Let's start the show. It's Monday, April 2nd. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio, from Stock Advisor Canada, Taylor Muckerman, and from Million Dollar Portfolio, Jason Moser. Happy April!

Jason Moser: Hey now!

Taylor Muckerman: We're stretching out over here. April Fool's Day part deux?

Moser: What is it now, April 2nd I guess, right?

Hill: Exactly. For those who haven't taken the time to go to fool.com, you can do that and check out Sunday's April Fool's joke from the editorial team. But as I mentioned, we're back. Taylor, were you here last week? Jason and I were away, albeit not together. 

Moser: There's nothing wrong with that.

Hill: Not that there's anything wrong with that.

Muckerman: Yeah, I was here. I went down to Virginia Beach for Easter, but I was in the office last week. Holding it down.

Hill: Alright. Stuff happened while we were away.

Muckerman: Just a little bit.

Hill: We're going to get to a few of those things. Let's start with Tesla, though, because, wow! Over the past week, shares of Tesla are down about 20%. I would love to say it was just one thing. I'm sure Tesla wishes it were just one thing. But they're dealing with multiple issues right now. I guess the most recent chronologically is the recall of 123,000 Model S cars, the recall being over possible power steering issues. Separately, Tesla is dealing with the National Transportation Safety Board, which issued a report over the fatal crash with the Model X vehicle. The NTSB is investigating. And that doesn't even mention their debt issues.

Muckerman: No.

Hill: Look, this is a company that's been on a tear for a long time. And the stock has been on a tear for a long time. But ...

Muckerman: At least the CEO is still comfortable making jokes. He's not too worried.

Moser: I feel like we could do the entire podcast just on this, and if we incorporated everything else -- let's be clear, I was calling for an hour, an hour and a half show today. There's a lot of stuff to get to, so let's get to it.

Hill: So, if you were to rank order the issues in terms of the business of Tesla right now, what is No. 1 on the list?

Muckerman: Personally, looming debt. I would put the NTSB pretty low on this, along with the joke from Elon Musk about Tesla's bankruptcy on April Fool's Day. Probably the looming debt issue, because you do need a high stock price for some of the convertible debt that they have coming to next year. I think $1.8 billion matures by November of next year. So, the cash burn plus that debt maturity. And now, you have the quality of their debt being lowered by six levels by Moody's to junk status, so you could be looking at much higher interest rates and maybe a little less interest if they have to try to refinance, issue more debt to pay off the debt that's looming. It could become a big issue for this company, with $3.5 billion in cash burn.

Moser: It's difficult to prioritize, because you're right, they're facing a lot of challenges. I think probably the biggest thing that comes of these problems, at least in the near-term, is that the market is going to start valuing this company a bit more like an actual car company. I mean, at least for a little while. I think that's actually a good thing. I think I've been very upfront that I love what Elon Musk stands for, what he's doing. I don't own Tesla shares, I don't know that I ever would, although maybe this sell-off could present an opportunity. Because, in the near-term, at least, this is a car company. It's a car company today, down the road it's an energy company and a battery company and all that stuff. But first things first, these guys are cars. 

So, yeah, April Fool's jokes aside, I think Taylor's right, I think the debt is at least something that investors have to take into consideration. They have no operating income, and they have significant interest payments they have to make every year. This stock has based its value on no fundamentals whatsoever. What I mean by that is, it's unprofitable. You can't sit there and say they have a P/E, because they don't have an actual E. So, plenty of concerns. I think investors should at least be asking the question, is this actually maybe an opportunity to pick up a very neat long-term story on some near-term weakness? I think it possibly could be.

Hill: And I agree with you, Taylor, in terms of, what are the biggest issues that they're dealing with, the NTSB report is probably the lowest on the list. That doesn't mean it's not something they don't have to deal with. Of course, every automaker has to deal with regulators. But if you just think of it in terms of, who is vying for Elon Musk's attention right now, you have regulators, you have customers, and I'll just speak for myself, as someone who's gotten various recall notices from various vehicles that I've owned over the years, sometimes I'll get a recall notice and I'm just like, OK, this is a minor issue, I'm not going in.

Muckerman: Yeah, like your sun visor or something like that.

Hill: Yeah. It's not worth it to me to take this in to get the sun visor fixed. This is not the sun visor with Tesla. But not every customer is going to deal with the recall. But, they have customers, they have creditors that are going to be knocking on their door about the debt. And that, to me, it's sort of the confluence of all of these groups vying for his attention and time that I think makes this particularly problematic right now.

Moser: I think in the near term, the easiest solution is, they're more than likely going to be issuing some stock at some point here. That's going to be an easy way to raise some money. We never really shun companies that make acquisitions with stock when their stock is at high prices. That's actually a good way to do it, assuming you have a market for issuing those shares. I think in Tesla's case, they probably will. 

Yeah, I mean, recalls are recalls. Every automaker deals with that. The only reason why Tesla maybe gets a little bit more attention is because they have a much smaller user base out there today, and we're entering this phase where automated cars are becoming more and more of a thing, so they start asking in the accident, was the self-driving device enabled. And again, I think self-driving cars, the technology is all there and it's all good. I think it's a lot farther out than people might have been thinking, not just because of the technology of the car, but the infrastructure, the roads here, you just need more for it to actually be able to work. But, they definitely have a lot of challenges on a lot of fronts.

Muckerman: I think if Elon Musk was more of a behind the scenes kind of a CEO, without SpaceX going on, and a boring company going on, and selling flamethrowers, maybe the company wouldn't be in the limelight so much. And that might have hurt the stock before. Maybe it wouldn't have risen so highly. But, I think it also hurts the company when, not necessarily minor issues, but some issues crop up, because everyone wants to put Tesla in the headlines.

Moser: Yeah, you live and die by that. Elon Musk has got to be the greatest capital raiser in the history of mankind, the guy can raise phenomenal amounts of money. And he has a knack for timing, tweeting something out just at the right time, shining a light on something just at the right time. And it really creates a positive buzz, and the company depends on that in many cases. 

Muckerman: For sure.

Moser: And the flip side is when that starts working against you, it becomes really difficult to manage, and I think we're seeing that play out right now.

Muckerman: All in the same week.

Hill: Let's move on to Under Armour. Shares down a little bit. Under Armour announced a data breach affecting 150 million accounts of their MyFitnessPal app. That's not a great name, MyFitnessPal. Anyway, regardless, what do you think, Jason? I saw this story and, for all of the troubles that Under Armour has had over the last two years, a bunch of which are self-inflicted, I just sort of shrugged at this one. They did say that payment card information was not affected in the breach. So, I just sort of looked at it and I thought, OK, nobody wants a data breach to happen, but I don't see this as being a particularly bad thing for them.

Muckerman: Oh no, they got my junk email address! What am I going to do?

Hill: My junk email address or my step count, how many steps I'm averaging in a given week. I don't know.

Moser: There are a couple of things I glean initially from it. No. 1, given that they knew about this a little bit earlier than when they released it, and then they released it after market close going into a long holiday weekend, I mean, yeah, that looks pretty weak.

Muckerman: PR 101. [laughs] 

Moser: Yeah, it sucks.

Hill: They're not the first company to pull that lever and they will not be the last.

Moser: And that's the thing, it's consistent with what a lot of other companies out there do. Now, I'm not saying that makes it right or wrong, I'm simply saying, perhaps there's an opportunity there to differentiate. So, I would have liked to have seen them come out with this a little bit sooner. 

You're right, this is the kind of data breach where I'm like, do I really care if you got my calorie count? I just don't. My email addresses? None of that stuff really matters. In a password world today where we're relying more on your fingerprint anyway, I mean, we talk about the data breaches, it's as John Bender said, screws fall out all the time, the world is an imperfect place. And I think we're going to keep on seeing this stuff as time goes on. With Under Armour, it's easy to put it in the spotlight and make fun of them. Is this something that impairs this business in anyway? Absolutely, 100% no.

Muckerman: But it was three times as many users as the Facebook data scandal! It's so much bigger!

Moser: [laughs] I know.

Hill: We were talking earlier, Jason, you pointed something out that I think is worth noting with Under Armour, if only because this might be the best silver lining they have right now as a business, which is the brand. For all of the issues that Under Armour has dealt with, they still have a good brand.

Moser: Yeah, I'll tell you, traveling around this past week, we were in a few airports and out of the country for a little while, that brand is still everywhere. I would venture to say today that the Under Armour brand alone, brand equity loan, is worth more than the market cap of the company right now.

Muckerman: We see sales grew 43% outside of North America last year.

Moser: Yeah. I really do feel like this is a stock where in a year, two years' time, assuming that Plank's leadership team is still there, this is a stock that's going to be worth considerably more than it is today.

Hill: Isn't that the thing, or, maybe not the thing, but one of the big things to watch with Under Armour this year, just this calendar year, is the management team? We've talked about that before, Kevin Plank, for all of his strengths as a business leader, he sure does seem to have a hard time keeping an executive team to stick around.

Moser: That's one of our three main points that we're watching in MDP with Under Armour, and personally with my holding as well. I need to make sure, leadership needs to be there. Plank is one thing, but he needs a team.

Hill: Tim Cook in the news recently, and I have to say, I like this version of Tim Cook. Not that I dislike the other versions of Tim Cook, but this is Tim Cook sitting down to do an interview promoting the updated iPad, it's got a lower price tag for schools, and in the interview, he ended up throwing a little bit of shade, both at Facebook and at Amazon. In the case of Facebook, he was asked about the data breach situation and what would he do in this situation, and he very quickly replied, "I wouldn't be in this situation."

Muckerman: He's trying to protect the highest market cap throne, king of the mountain.

Hill: Exactly. And in the case of Amazon, he made it clear, he's not a fan of what Amazon is doing with the contest for their second headquarters. Which, I don't know, between Facebook and Amazon, should one of them be more offended than the other? I feel like it's Facebook.

Muckerman: I feel like it's more deserved for Facebook, at least. But then we see Zuckerberg coming back and arguing that Apple is too highly priced, then I think that's just a talking point. Yeah, I think Facebook deserves some shade. It might as well come from someone, not necessarily a direct competitor, but in the tech scene, and very well known. It's good to have an opinion. I feel like, you're the CEO of Apple, why not throw some shade?

Hill: Absolutely. And as you mentioned, Mark Zuckerberg gave an interview that was just published this morning, I think it was with Vox Media, and he took issue with Cook's comments and fired back. Actually, he invoked Jeff Bezos in doing so, talking about, this was years ago, Bezos made the point that there are some businesses that are trying to figure out ways to charge more, and there are businesses that are figuring out ways to charge less, and we're trying to be the latter. And Zuckerberg attempted to align himself with that as well. I don't know that he pulled it off.

Muckerman: Yeah, it's difficult, because you're kind of comparing ... we're not paying for Facebook, but the advertisers are paying for Facebook, and they're arguably paying more, because the data is more available, you can target so well. So, yeah, Facebook is charging more, they're just not charging us more.

Moser: Yeah. And no one's forcing you to go post what you ate for lunch yesterday, let's be clear. I liked his point that, listen, we're trying to connect the whole world. It's not economically feasible for everybody to actually pay for that, and that's not what we stand for. So, for me, I like seeing the back and forth, I think it's good to get all the perspectives. 

I kind of feel it, in regard to Tim Cook, that's kind of like a mango telling a banana, "You're not going to slip on our peel." It's like, wait a minute, you're both fruit, but with a mango, you have to peel it, but you have to prepare for that. You have to go peel it in the kitchen, and then you cut it up. You're not going to find any mango peels on the floor. A banana, you can just peel it, throw the peel on the floor, eat it, boom, and then someone slips on it. It's same, but it's different. And I feel like that's what Tim Cook is doing here. It's not the same thing. It's similar, but it's very different. I think for Cook, I would rather have seen him say, "You know what, this is something that could potentially happen to us." Because they have iTunes on the App Store and all that stuff with a buttload of payment data. In one big breach, he's going to be eating his shoe. I feel like he was a bit quick to jump in there, "Oh, that would never happen us." Well, be careful there, man, because it certainly could. You're not as different as you think you may be.

Hill: If listeners didn't know that you spent last week in the Bahamas --

Muckerman: I was going to say.

Hill: -- that mango banana analogy really sent a signal.

Moser: [laughs] I eat a lot of mangoes and bananas at home anyway, I just like them. And to me, it struck me, I was like, you have to peel them both.

Muckerman: And the mango is more slippery than the banana. Maybe you drop a slice of mango --

Moser: Exactly! You peel the mango, and then you're holding it, that sucker comes right out like --

Muckerman: A bar of soap.

Hill: A little fresh lime juice on the mango?

Moser: Ooh, yeah. We have some of those upstairs in the fridge.

Muckerman: Apparently, some hot sauce you put on it is the ticket.

Moser: That's right.

Hill: To go back to Tim Cook for a second, that is the one thing I thought about that. And when you read that quote, it can come off as more smug and haughty than if you watch the interview. But I did have that thought as well, I just thought, OK, but ...

Moser: Humility goes a really long way. You know what I mean? That's kind of a general life stance of mind, humility goes a long way.

Muckerman: Probably wouldn't have been a Jobs comment.

Moser: Hey, I don't know.

Hill: By the way, I did agree with him about the -- oh, please, let's not pretend that Steve Jobs never went out of his way to throw a verbal elbow at someone. I did agree with his point a little bit about Amazon. And I'm not an Apple shareholder, I'm an Amazon shareholder, and I've said before, I hope they make the right decision for the business. And of course, 2% of me really wants it to be close to Ron Gross' home.

Moser: It's going to be never-ending content. [laughs] 

Hill: But, I don't think he's wrong with that. That was my reaction when the list came out, I just thought, 20 cities? Come on, at least narrow it down to single digits.

Moser: I think you're right, I think he made a fair observation there.

Muckerman: I didn't see it. Too long don't read version?

Moser: He's criticizing their process.

Hill: Basically comparing it a little bit to a beauty contest. You're going to have one winner, you're going to have 19 losers.

Moser: [laughs] Loser!

Hill: You're going to have a lot of people who spend a lot of time and effort --

Muckerman: Yeah, tons of time and effort.

Hill: -- and they're not going to win, and they're going to feel like, maybe not that the bridge has been burnt, but they're going to feel a little put out by the whole process because they didn't get it.

Muckerman: That'd be a fun exercise, to find out how much money was actually spent by these governments who might be over budget for years, and how much money was wasted trying to appeal to Amazon.

Hill: Well, it's interesting to see -- the longer this process goes on, I personally find it interesting to see how cities and states are reacting to this. You have, Maryland appears to be backing up a Brinks truck to try, again, which is great, because it increases the chance it's going to be close to Ron's house. But, the governor of Colorado came out, because Denver's on the list, he came out recently and said, "You know what? It's all the same to me if they go somewhere else, that's fine."

Moser: You know what I wonder, maybe sort of a little bit of an ulterior motive here, I mean, I like how it forces the cities, you said to up their game, and you have these cities competing a little bit, trying to make themselves better and make themselves attractive. So, I feel like, if I'm a governor of a particular state or an official of a particular city, I think I'm looking at this beyond Amazon, I'm saying, "Maybe we don't land the big fish here, but it's not the only business in the world, and there are going to be other opportunities to bring more business into our state. So, let's build this long-term focused reputation on being business-friendly. We want to welcome companies like Amazon." I think if you look at it beyond just the Amazon win or loss, I think there are a lot of states or cities in those states that stand to benefit.

Muckerman: And if you're a big business, you're like, "Well, you were going to give Amazon this, why don't you give us a little bit?"

Moser: Right. And in the other states, you look at that crap that they pulled in Georgia with the lieutenant governor and the whole Delta snafu, I just have to believe, companies are looking at that and saying, we don't even want to bother with you, because we see how you're going to play this. So, I think you get to see a lot of what these states and leaders stand for in the first place.

Hill: Jason Moser, Taylor Muckerman, thanks for being here guys!

Muckerman: Cheers!

Moser: Thank you!

Hill: As always, people on the program they have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!