by Kyle Woodley | December 3, 2013 12:09 pm
Tesla Motors (TSLA) is off to the races this morning on news that Germany has taken a giant monkey off its back. Specifically, TSLA stock is up more than 10% following the announcement that the German Federal Motor Transport Authority has deemed the Tesla Model S defect-free. The review came after three recent crashes resulted in Tesla fires.
Considering Germany knows a thing or two about auto engineering, I’m taking this is an opportunity to breathe easy and let Tesla Motors get back to doing what it does best.
That’s making cars, and making people (namely, TSLA stock investors) money.
Tesla stock is up more than 300% year-to-date, and at its October nadir just a few dollars shy of $200, TSLA had advanced roughly 470%.
So, what went wrong for TSLA stock investors?
Well, while skepticism about the company’s new leasing system and subsequent accounting practices have been a little nagging, the primary culprit has been fires in the Tesla Model S sedan. From early October through November, three Tesla fires were reported in Model S vehicles, leading to widely publicized safety concerns from the press. Oh yeah, and a 30% bludgeoning of TSLA stock.
To those of us browsing around the discount rack, that spelled opportunity in TSLA.
Car fires are no joke, but the uproar surrounding Tesla fires was almost laughable. That’s because car fires are actually pretty darn common — according to the National Fire Protection Association, the U.S. suffers about 150,000 of them per year. TSLA chief Elon Musk groused about as much on Twitter in mid-November:
Why does a Tesla fire w no injury get more media headlines than 100,000 gas car fires that kill 100s of people per year?
— Elon Musk (@elonmusk) November 19, 2013
Meanwhile, 2013 Ford (F) Fusions and Escapes were recalled over engine fires at several points last year, and … yup, no widespread panic.
Granted, there’s a huge difference between Ford and Tesla Motors. The former sells millions of cars around the world across several dozen models and has a pretty darn reliable background. The latter has just two production models (the Tesla Model S and Roadster), is projecting 21,500 Model S unit sales this year and deals solely in an emerging technology (electric vehicles).
So to be fair, it’s really difficult to criticize anyone who bailed out of TSLA stock, especially if they were sitting on ludicrous gains. Is taking 400% profits really that ill-advised amid scary headlines of Tesla Model S fires when that vehicle is the bread, butter, meat, potatoes, salad and pudding for TSLA?
But it sure made for a nice entry point for people who see the writing on the long-term wall.
That writing on the wall? That EV is the growing wave here and abroad (New to a China near you: Tesla!), and that Elon Musk is the brilliant/arrogant/ballsy CEO who could get it done without being under a major crest like Ford or General Motors (GM).
And for what it’s worth, if you browse the comments section of any Tesla story, you’ll find that TSLA has a rare breed of rabid fanbase — for both its stock and its cars — that can really help elevate a brand. Never discount word of mouth, especially among the elite.
It’s hard to imagine Tesla stock having another run even remotely resembling what we’ve seen in 2013. But many thought this run was impossible in the first place, and you don’t need TSLA to mow down 300% runs annually for it to be the high-growth holding that helps keep your portfolio aloft.
For a company that expects to double production next year, and that analysts expect could reach 100,000 by 2016 … that’s plenty doable.
I’ll at least warn that the size of Tesla still makes it susceptible to a single knockout blow. The most base fear behind the Tesla fires — that if its primary product is in trouble, TSLA stock is in trouble — is legitimate. If the Tesla Model S is later determined to have engine problems that detonate every kitchen appliance within a 50-mile radius and harasses the neighbors’ cats, yes, TSLA stock will plummet into the ground.
So, be safe. Set generous stop-losses on TSLA that will protect you from the absolute worst, but give you room for the occasional scare.
But first, buy Tesla stock while it’s still on the mend.
Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he was long TSLA. Follow him on Twitter at @IPKyleWoodley.
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