Tesla Rolls Right Over Its Skeptics

Tesla (TSLA) is suddenly more valuable than Ford (F) and General Motors (GM). And longtime bears are losing their minds.

You have to feel for them. At first glance, it doesn’t make sense. Money-losing Tesla sold just 76,000 cars last year. Ford sold 6.6 million vehicles and made a pile of money. The difference is Tesla is part of the future. Ford, not so much.

That has been the message of the market for a long time. It’s the type of big-picture analysis proselytized by maverick speculator Jesse Livermore in Reminiscences of a Stock Operator, the 1923 investment classic. He knew markets are driven by humans, and human nature never changes. Trends, based on simple narratives, persist. Getting sore or arguing metrics solves nothing.

Don’t tell bears that. They have been fighting Tesla shares all the way to new highs.

Early Monday trading boosted the market capitalization value of the Silicon Valley company to about $51 billion. That puts both Ford and General Motors in the market-cap rearview mirror at $44.7 billion, and $50.8 billion, respectively.

That may sound like cause for celebration, yet I doubt Tesla founder Elon Musk is focused on Detroit. Since 2006, he’s been building an information-technology company to help the world transition away from dirty, fossil fuels to clean, renewable energy.

To get there, Tesla is harnessing all the benefits from the exponential progression of technology. Powerful, ubiquitous compute and advanced data analytics fundamentally changed the way things get discovered. The old strategy of hit-and-miss is dead.

Investors view Tesla in the league of other IT champions like Amazon (AMZN), Apple (AAPL), Facebook (FB), Alphabet (GOOGL) and Netflix (NFLX).

Only short-sighted investors consider Tesla simply a car company.

It helps that the product is aspirational. Tesla cars have always been coveted. Its original roadster was a no-compromises electric rocket bolted onto a Lotus frame. Upscale sedan and SUV buyers hanker for the Model S and Model X. And the Model 3, a shrunken version of the S, spawned iPhone-like lineups at Tesla stores and 400,000 preorders in just a few days.

When is the last time someone lined up to buy a Ford?

Matt Jonas, an auto analyst at Morgan Stanley has been a longtime Tesla bull. In a note to clients last week, Thoughts at $300, he argued investors are wrong to view Tesla as just a car company. The real value, he opined, was its “captive ecosystem of data collecting transport machines.” He believes the real-time data being collected by Tesla’s growing fleet of electric vehicles is a distinct advantage over competitors and can be monetized.

Also, Jonas suspects that Musk isn’t just building a business. He believes Musk’s building a platform that he can use to leverage Tesla into creating a new electric infrastructure for industries, homes and cities.

Ecosystems, platforms and data collection. That sounds like an IT company to me.

Naysayers and bears focus elsewhere. They still like the comparisons they feel show them winning. Last month, General Motors sold 256,000 vehicles. Ford sold 234,000. Tesla sold 4,000.

Worse, the Model 3 is supposed to be Tesla’s mass market car, they argue. Musk claims production should reach 500,000 units by 2018. But Karl Brauer, senior editor at Kelley Bluebook, doubts that Musk can make good on the promise.

“That’s five-times growth in volume,” Brauer, told The New York Times. “I don’t know any other car company that’s ever done that in a two-year period.”

Livermore would be chuckling to himself. He knew rationalizing failed positions is a sucker’s move. The goal was to determine when you were wrong, then stop being wrong.

Tesla is a polarizing stock. Long ago, investors bet it was more than a simple car company. That narrative persists. I’m not saying that will be forever the case. The narrative could change.

However, right now, bears are wrong.

Best wishes,

Jon Markman

 


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