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The Case For — and Against — Tesla Stock

EV maker is at a crticial crossroads. Should you buy?

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Electric battery maker A123 Systems‘ (NASDAQ:AONE) recent Chapter 11 bankruptcy filing is just the latest in a laundry list of negative headlines marring electric vehicles’ technological march.

General Motors (NYSE:GM) has twice suspended production of its electric hybrid Chevy Volt this year as inventory piled up. Meanwhile, sales of the Nissan (PINK:NSANY) Leaf plug-in have dropped 28% year-over-year through September. The Fisker Karma luxury plug-in was panned by Consumer Reports. And a number of automakers have instead focused on improving other fuel technologies rather than deal with electric batteries.

All told, President Barack Obama’s goal of putting 1 million electric cars on the road by 2015 has been only 5% realized since 2011.

It’s a shaky time for the EV frontier, so naturally, Tesla Motors (NASDAQ:TSLA) — the premier name in electric vehicles — has been put into the spotlight. The luxury automaker’s shares are roughly flat year-to-date amid both successes and setbacks to its small fleet of vehicles, and it faces a nation that has been sluggish to adopt EV technology overall.

Which leaves investors stuck with the following question: Is Tesla fated to the same eventual petering out of A123 as consumers shrug and embrace other technologies? Or is EV truly the future — and one that Tesla shareholders can ride to electric gains?

Two InvestorPlace writers who sit on opposite sides of the fence might be able to help you decide.

The Bulls: Tesla’s Leader Is One of a Kind

By Jim Woods

In the interest of full disclosure, I want to say I’ve actually driven Tesla’s game-changing Roadster. I’ve also actually met with and interviewed the company’s impressive CEO, Elon Musk.

Now, I suspect that either of these two stimulating experiences on their own would tend to engender a tremendous bias in favor of Tesla, but that’s not why I am firmly in the bull camp when it comes to the company’s growth prospects, or its share price outlook going forward.

My bullish bias has more to do with the real positive factors that lead me to believe this company will continue to be the hottest growth story in the auto industry for years to come.

There is nothing more powerful than a new company with a cool new product that caters to a well-heeled demographic less concerned with cost than it is with product quality. This is precisely what has made the all-electric automaker a favorite among sophisticated, luxury vehicle buyers. It’s also what has made Tesla shares a hot — yet admittedly volatile — stock during its past two-plus years of public trade.

In fact, since its June 2010 debut, the stock has accelerated more than 48%; however, that road higher has been anything but a smooth, steady climb. The recent trend in the stock has been lower, as there’s been a tremendous amount of short interest. This level of short interest didn’t go unnoticed by Elon Musk. In an interview with Liz Claman of Fox Business Network, Musk made a forceful statement about the high number of investors who hold short positions in TSLA shares (emphasis mine):

“I think it’s very unwise to be shorting Tesla. I think there’s a tsunami of hurt coming for those holding a short position, and it’s going to be very unpleasant. I advise people to exit while there is time.”

This kind of statement regarding your company’s stock is extremely rare from a CEO, but that’s just the kind of person at the helm of Tesla. In fact, the business acumen and vision possessed by Musk is one big reason why I am bullish on Tesla, both as a company and as a stock.

Already, Musk has made the new Model S sedan one of the most highly anticipated vehicles ever, and the company continues to see order growth with every quarter. In fact, Tesla continues to have a huge backlog of orders for the electric sports sedan. That order growth also is reflected in the growth of the company, which has hired more than 1,000 workers during the past eight months, and now employs approximately 3,000.

The bottom line here is that despite the growing pains associated with a new technology, and despite the politically charged atmosphere that has caused Tesla to be mentioned by name during the first presidential debate, I suspect Tesla will continue to be a stellar growth story in the auto space. As such, look for the share price to continue its long-term trend higher.


Article printed from InvestorPlace Media, http://investorplace.com/2012/10/the-case-for-and-against-tesla-stock/.

©2014 InvestorPlace Media, LLC

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