Tesla Inc (NASDAQ:TSLA) is well-known within the investment community. Bears argue that Tesla is a cash-strapped company rich in valuation, while bulls says Tesla stock is a buy based on its future potential. Most investors base much of their thesis on the company’s car production.
Specifically, they focus on Tesla’s current deliveries of the Model S and Model X. They also focus on whether Elon Musk & Co. will be able to mass produce the Model 3. If the upstart futurist can efficiently produce and sell enough of the Model 3, bulls will view this as a success.
The plan is for Tesla’s affordable, mass-consumer Model 3 — reportedly in the mid-$30,000 range — to engage both mid-tier and high-tier buyers. Should a hiccup in production arise or a spike in costs materialize, however, bears will sink their teeth into the notion that success may not be so imminent.
Both the bull and bear theses overlook something crucial to the future of Tesla: Energy.
Tesla Stock’s True Driver
Tesla acquired SolarCity in late-2016, giving the company a new business segment with solar. While solar may not be the most profitable venture, its synergies could be the focus.
TSLA has been quietly ramping up its energy business. Specifically, Tesla produces both residential and commercial battery packs. On the commercial side, these refrigerator-sized batteries serve as a backup power source to municipalities.
Tesla recently installed 396 of these batteries for a city in California. It did so ahead of schedule as well. This may seem like an immaterial footnote, but it shows that management’s execution is on point. This could be a key selling point alongside the product when it comes to getting new cities on board.
Even more recently, TSLA unveiled a big project on the Hawaiian island Kauai. Tesla installed almost 55,000 solar panels in combination with 272 commercial batteries. The project will generate energy by day and night thanks to the battery and solar panel combination. Additionally, it will save about 1.6 million gallons of diesel per year.
Tesla’s Tipping Point
These are just two recent projects. Admittedly, the trickle down to the bottom line will not be significant at first. Now that Tesla’s Gigafactory has started to come online, battery production won’t be as constrained.
If TSLA is able to garner more contracts for these types of projects, it could create a tipping point in its business model.
Tesla stock is currently tied to auto production, like Ford Motor Company (NYSE:F) or General Motors Company (NYSE:GM). As demand grows for Tesla’s vehicles, it will be more susceptible to the cyclical whims of the auto market. If Tesla can balance out the ups-and-downs of this market with a more consistent energy business, though, investors should cheer the move.
Our energy grid is susceptible to issues, but through backup storage via batteries and power generation via solar panels, Tesla is distinguishing itself from the competition.
Bottom Line on Tesla Stock
It’s not all roses and rainbows for Tesla stock. Bears can point to lithium supply constraints or rising costs as negative catalysts. Tesla is raising capital and there is Model 3 execution risk, too. These are all true points. We even laid out why we’re not buyers of TSLA stock at current levels earlier this month.
With all that said, CEO Elon Musk is a visionary. He’s building state-of-the-art cars and quietly building out an energy arm that investors will soon take note of. While all growth stocks are susceptible to heavy volatility, Tesla’s long-term outlook is attractive — even if it looks expensive as well.
Luckily, Tesla has passionate investors.
As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
