Editor’s note: This column is the latest update in our 10 Best Stocks for 2014 contest. Kyle Woodley’s pick for the contest is Tesla Motors (TSLA).
“Oh my God.”
I mean, what else was I going to say? Elon Musk, CEO of Tesla Motors (TSLA) — my pick in InvestorPlace’s Best Stocks for 2014 contest — just emptied the vault.
Well, the wall, actually. To be specific, the “wall of Tesla patents in the lobby of our Palo Alto headquarters.”
In a post titled “All Our Patent Are Belong to You” (reference to this awesomely nerdy bit of humor can be found here), Elon Musk announced that Tesla was going way above and beyond previous musings that he was going to open up Supercharger technology patents to other industries … and was opening up all Tesla patents for its electric vehicles.
The mission: Save the world.
Musk’s drive toward not just making standout products, but sustainable standout products is well-documented, and now he’s making what appears on its face to be a monster business gamble on it.
Tesla Motors is virtually handing away the keys to its cars — Musk says TSLA “will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology” — to anyone who wants to tussle in the long-range EV arena.
Great for Earth, but … oh, let’s be selfish and ask, “What the hell is that about to do to my Tesla stock?”
After all, that’s why you’re here, isn’t it?
Elon Musk doesn’t seem to be breaking a sweat, but then again, he is worth a cool $8.3 billion. Even if much of that is built upon the worth of Tesla stock, my guess is that Palo Alto could be vaporized tomorrow, and he wouldn’t want for anything again. (As long as he was tooling around in Santa Clara when it happened.)
For those of us who aren’t nearly as set? Well, I still wouldn’t worry about the Tesla patents going mainstream.
I know I’m not.
The news didn’t break long ago, so maybe Wall Street is being slow to react, but we’re not seeing a precipitous dip right away. So as far as immediate panic selling goes, we seem to be OK.
And consider this: Even if Musk mailed every patent at HQ to all the world’s major automakers, do you think they’d be rolling out their own comparable Tesla knock-offs in six months? A year?
Tesla stock is far from a worry-free investment right now. No one can seem to agree on whether the proposed “gigafactory” is more novel brilliance or an oversized disaster waiting to happen. And real luxury competition is on its way, in the form of BMW’s zero-emission i3. (Update: BMW reportedly met with Tesla executives to talk about potentially teaming up.)
You’re certainly paying for growth, too. Tesla earnings are expected to rocket 50% this year before exploding by another 166% the year after, according to Thomson Reuters-surveyed analysts. But TSLA currently trades at 65 times earnings and sports a price/earnings-to-growth ratio of 4.5 … so, that growth ain’t a secret.
Still … while Musk is many things, a loser isn’t one of them.
Maybe the game is much bigger than having the best product or having a stock that heads endlessly upward. After all, Musk said, “Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.”
But something tells me he didn’t just intentionally put himself out of business. Musk also said, “the market is enormous,” and he’s right. EV production is a whisper of a fraction of annual car output. Not to mention, Tesla plays deftly in the socioeconomic class that can best afford to expand electric-car use.
Just because Tesla currently rules due to lack of options doesn’t mean it can’t be king of a crowded field, too.
Elon Musk occasionally makes splashes that seemingly don’t have his shareholders’ best interests in mind. Case in point: Telling the media that the stock price is “more than we have any right to deserve.”
Funny thing, though. TSLA shares are up 17% since then.
Might Musk have just dug his company’s grave? Super-long-term, maybe. But Tesla Motors hasn’t become any worse of an investment for the next few years than it was before the sun came up this morning.
Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he was long TSLA. Follow him on Twitter at @KyleWoodley.