Tesla Motors Inc (TSLA) Is at a Critical Crossroads

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tsla stock - Tesla Motors Inc (TSLA) Is at a Critical Crossroads

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Tesla Motors Inc (NASDAQ:TSLA) is having one of those weeks. Tesla stock reacted positively when federal regulators declared their support for automated vehicle technology. Previously, Elon Musk — the CEO of this Wall Street darling-turned-heel — was criticized for aggressively courting automated driving platforms.

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Yet Tesla stock shaved off some gains when a suspected automated driving fatality was reported in China. Although it’s very early in the investigation, the implications are crystal-clear.

Now the question becomes: On which side of the bull-bear coin will TSLA stock land?

Bullish Fundamentals for Tesla Stock

On the positive front, the endorsement by the U.S. Department of Transportation will be a major boon for Tesla stock.

Although official regulations have not been declared, the agency has issued broad guidelines to balance commercial interests and the public good. In that way, companies like TSLA — along with tech specialists Mobileye NV (NYSE:MBLY) and Alphabet Inc. (NASDAQ:GOOGL) — can freely innovate within reasonable boundaries. That’s a win for both auto manufacturers and policy makers.

Amid a heated political environment, the DOT has snagged a unique, bipartisan opportunity. In 2015, auto-related fatalities numbered nearly 40,000 — the highest figure since 2008. Anything to curb that tragic statistic is a victory from any angle. For Tesla stock in particular, the DOT has signaled the way forward. As a result, we can expect traditional auto companies like Ford Motor Company (NYSE:F) and Volvo AB (ADR) (OTCMKTS:VOLVY) to ardently continue their work in automated driving.

Technological Worries Hinder TSLA

At the same time, there are very real criticisms that pose risks for TSLA stock.

The obvious one is: Will the platform work as advertised? While Tesla stock bulls and automation proponents will swear by the technology, there are still concerns. Primarily, we have heard often comical stories of so-called “GPS fails.” Usually, navigational system malfunctions result in wasted time and embarrassment.

But there’s nothing funny about your car driving your family into a concrete wall.

If GPS technology — which has been around for a lot longer than automated driving — isn’t perfect, how reasonable is it to entrust our lives to our cars? It honestly depends on whether you or your family members are the statistic. TSLA disclosed in June of this year a fatality involving their proprietary “Autopilot” system. The Chinese case, if it were to be confirmed as Autopilot-related, would make it two. Not surprisingly, TSLA stock is in whiplash mode this year.

The cynical perspective, of course, is that these are very rare incidents compared to the number of Tesla-branded cars on the road. Even against the 70,000 cars that are specifically equipped with Autopilot, the failure rate is mathematically insignificant. There have been far worse controversies involving the auto industry.

By comparison, this is fairly tame, and the impact to TSLA stock should be limited in theory.

TSLA Stock Faces Tough Questions

But markets are often illogical, as can be attested by the incomparable Sir Isaac Newton, who famously “lost it all.” What we can say with certainty is that the markets have their own logic. A good chunk of that includes perception. Regardless of the fundamental strengths of TSLA, if the public isn’t buying it, then Tesla stock isn’t going to go anywhere.

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Source: Source: JYE Financial, unless otherwise indicated

For all the hype and hoopla, there’s an argument to be made that Tesla stock is somewhat average. Of course, it’s a young company, but TSLA stock has only had three years of outstanding performances, and only one year that was truly remarkable. When you take away the stellar return of 2013, what you are left with is an average profitability rate of 15%.

Don’t get me wrong — I’ll take 15% annualized returns any day. But you have to deal with the media circus, and the question of whether that rate can possibly continue?

What about the risk that the “Johnny-come-latelys” will quickly tire with TSLA and move on to something sexier?

Potential investors will have to make that call on their own.

The Bottom Line for Tesla Stock

The final verdict is that Tesla stock is a cautious buy. The sideways price action that we’ve seen in the markets is extraordinarily frustrating. The concerns about Autopilot technology, along with the general competitiveness of the auto industry, will resist upward movement. However, the case for TSLA stock was really bolstered by the government and the shift in industry-sentiment.

Automated driving is, and will be, a thing, and TSLA has a considerable advantage in this sector. Just don’t pull an Isaac Newton.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/tesla-motors-inc-tsla-stock-crossroads/.

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