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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Comments 10

  1. Robert R. April 10, 2017

    Incredible! I sincerely hope that Elon can pull this off. I recently got to see a Model X up close and was blown away. If Tesla can get the less expensive car to market I will gladly buy one. It is truly an exciting time to be alive and witness these incredible tech advances. I am almost 50 now but I hope to live to 100. If for nothing else than to witness how far these new technologies will take us. By the way, I’ve made money off several of your timely articles. I have followed you since your days at Microsoft. Keep up the good work!

    Reply

  2. alan styskel April 10, 2017

    Remember hoola hoops? They didn’t last long either.

    Reply

  3. Robert Gagliardi April 11, 2017

    The Tesla company was robbed from the original Mr.Tesla by the electric energy hogs and how did Musk end up with this mans whole concept and company?

    Reply

  4. Bob April 11, 2017

    Jon,
    Another Tesla article without facts of truth. These stories are a dime a dozen written by journalist under pressure just to write something positive about Tesla and Mr. Musk.
    Elon Musk is a visionary but not business minded and has too much money to waste.
    I long for the day an intelligent journalist writes the TRUTH about Tesla cars.
    In the short term Tesla investors will win but in the long term Tesla will crash and burn.
    Ford, GM and other auto manufacturers will win out, about 3-years from now.
    Bob

    Reply

  5. Joe April 12, 2017

    Tesla only survives on government subsidies, aka theft from the taxpayers.

    There’s a sucker born every minute.

    Reply

  6. anthony barbuto April 12, 2017

    We are leaving the Oil age and entering the Solar Age. Ford and other car companies are dinosaurs who are dying, or should die off. Tesla, is the new species, who like the mammals who took over the earth as the dinosaurs died off, will live on and eventually be the predominant specie.
    We reached peak oil some time ago. Oil is only going to become more expensive to find and exploit. We have had numerous wars all over the world saying ” US interests are at stake”…That has usually meant…” the companies of the military industrial cartels want something from this country….we are coming in” Then we put some BOZO in charge…as long as he sells to us…..at our prices!…ENOIUGH of this !…the oil thirst has claimed millions of lives in wars and consumed trillions of dollars in capital. We don’t need oil any more to burn in cars.Elon Musk and others have shown that solar is now affordable. Peter Diamedes( spelling?), the founder of the X prize, says solar is 1000 X more affordable than back in the 1970s, when Jimmy Carter tried to wean us from oil. It did not work because of the power of the oil lobbies and the cost of going solar. As we realize that the military industrial complex companies, who have pushed us into globalization and all the ills that has caused, must be stopped, other companies have come up to best them. Enter Elon Musk. Musk realized that he needed something to produce car batteries efficiently. HE needed the economy of scale that auto production uses. Autos are made in millions. Musk needed millions of batteries to get the economy of scale down to affordably make electric cars…but most importantly, the batteries. Storing solar has been one of the main problems preventing people from going 100% solar.Before Musks batteries,you have had to have a back up system. Now with efficient storage batteries you can store excess electricity. Tesla is selling this technology to companies and the military who want to divest them selves from expensive energy cartels, and the liability of getting energy from local companies.Musk is also building reusable rockets. He has proved the advantage and cost savings by creating reusable rockets ( spacex). This can lead to the building of solar satellites around the earth to beam down “free” solar power. Catch it in receiving stations and input it in to the power grid and you can do away with coal and oil and nuclear power energy plants. Musk is the future. Oil and the established car companies are the past. I say go with the future. Musk will be the first TRILLIONAIRE and will own the complete solar industry ( or at least in parts):.solar city to collect solar energy on building roofs, Tesla Motors and Tesla Wall for the storage batteries, and spacex to launch payload to build solar satellites in space ( read ” High Frontier “, “Colonies in space”)..I am putting my money on ELon Musk.

    Reply

  7. Rolando Avila April 13, 2017

    how much will Tesla needs to invest to duplicate its production. still it would be 8,000/10,000 cars a month ?
    and never will be able to have an ample variety of cars and trucks; just sport cars !! (which is not bad)
    it’s a wishful thinking trying to compare Tesla with Ford and GM.
    Such is life !

    Reply

  8. Ken Fowler April 14, 2017

    Two things come to mind. First this conversation reminds me of the new “business model” during the late 1990’s suggested by some economists where pouring money into the dot com’s bank account represented profit and made them money in spite of the red balance sheet????? We know all to well what happened there. The second observation is simply one that most Tesla and all electric car owners have to deal with and, that is the planning necessary (energy car anxiety) to go most anywhere involving a number of miles. Try driving a Tesla from San Francisco to LA in one day. You had better take some good books to read. Therefore, most Tesla owners have a second gasoline vehicle for anything requiring distance. This is not to say that improved battery technology and quick change battery packs will not help the situation in the future but, for the moment, Tesla has not come up with an answer. Better take the Chevrolet Impala.

    Reply

  9. Lorne DeWitt April 18, 2017

    The real difference is Tesla is being subsidized by the US government, I mean tax payers. If you take all the subsidy money away from Tesla it is neither profitable, more valuable, a safe investment, nor even a viable business model. The very day government subsidies paid to Tesla end, is when Tesla ceases to exist. Just another example of corporate welfare and redistribution of wealth to the CEO, CFO, and board members; as”gubernment” continues its picking of winners and losers. Not a free market!

    Reply

  10. Ariel F. Lovelace April 19, 2017

    Okay, let me get this straight.
    An automotive giant [Ford] that produces gigantic profits on it’s own and produces the world’s most purchased vehicle [Ford F-150] is a thing of the past.
    And Tesla whose entire profit margin and discretionary revenue are derived from tax breaks and the Selling of those tax breaks is worth more than Ford or General Motors and In Addition … is The Future.
    Really ?

    Reply