Until Musk Proves He Can Keep His Promises, Don't Buy Tesla

Elon Musk's dream of sending a spacecraft to Mars by 2018 seems a little crazy. But his goal to have Tesla (TSLA) - Get Report making 500,000 vehicles in 2018 and one million a year in 2020 may be even crazier.

Despite increasing demand for eco-friendly cars, and Musk's remarkably innovative company, what appear to be unreasonably high expectations suggest that senior management is not being realistic. Tesla is well below those numbers now and faces a number of challenges for amping up production. 

Investors suspected as much. Shares fell more than 5% Thursday. 

Musk's goals raise questions about his leadership and are part of the reason that the company is a dangerous stock.

Tesla reported earnings on Wednesday and Elon Musk announced the new production goals. Previously, Musk's goal was to make 500,000 cars a year in 2020, but he told analysts and investors on the company conference call of his upward revision.

So why is this goal so crazy?

This past quarter the company pledged to deliver 16,000 vehicles, but only shipped 14,820. Despite that miss, Tesla still believes it can produce 80,000 to 90,000 vehicles during 2016. Tesla told investors the main reason for missing its goal was supplier parts shortages.

For Tesla to hit this goal, let alone increase production more than 11 fold over the next four years, it needs its suppliers to hit their goals and for other things to go right. 

Consider that Tesla told investors in the earnings report that it would likely miss its previous goal of finally generating cash in 2016 due to increased spending that will be needed to hit its 2018 production goals. Tesla had previously planned to spend $1.5 billion in 2016, but will now spend to as much as $2.25 billion. That will increase the company's debt and may hurt its ability to be innovative -- one of its major advantages in the increasingly competitive electric car landscape. 

Suppliers may have to spend more as well to meet Tesla's growing demands. That may not be easy. 

In addition, compare Tesla's 500,000 a year delivery to the millions of cars that Ford and General Motors currently deliver, and both those companies are investing in electric car technology in a big way. GM's Chevrolet division will launch a new version of its Bolt line. The car will cost under $30,000, less than half the amount of Tesla's current lowest price model. 

Furthermore, based on market capitalization, Tesla at $28 billion is way overvalued compared to Ford at $53 billion and GM at $47 billion.

Investors considering Tesla should understand that Musk has consistently over-promised and under-delivered. In most cases the cause of missing goals has not been Tesla, but outside forces. But that still represents a pattern. 

Regardless though of who is to blame, investors need to understand Musk is a dreamer and when you buy shares of Tesla, you are putting your money in the hands of a man who dreams big.

If Musk misses big, there will be consequences for the company and investors. That is what makes Tesla a dangerous stock to own.

---

Tesla is not the only dangerous stock in the market. Currently there are a group of 29 dangerous stocks which are a terrible place for your money today. In fact, using a little-known financial "health test," the stocks on this list are a failure in every category! Click here now to make sure you don't make the mistake of owning one.

This article is commentary by an independent contributor. At the time of publication, the author held stock in Tesla.