I wrote last month that Tesla Inc (NASDAQ:TSLA) stock was a terrible short, and the past few weeks seem to confirm that thesis. Tesla stock is at an all-time high once again — despite a reasonable amount of somewhat concerning news. First-quarter earnings in early May seemed a modest disappointment. TSLA stock actually fell on the report, and it looked like a torrid year-to-date run was over.
That obviously wasn’t the case. Tesla stock has picked up again, gaining 17% in just the last two weeks. TSLA stock is now up almost 67% YTD, having added over $20 billion in market capitalization.
The more recent gains have come despite developments that might take down lesser stocks.
A downgrade from Morgan Stanley has been ignored. A CEO change at Ford Motor Company (NYSE:F) that might imply better focus on electric and/or autonomous vehicles hasn’t impacted Tesla’s market cap lead over both Ford and General Motors Company (NYSE:GM). (In fact, the gap has grown.) Toyota Motor Corp (ADR) (NYSE:TM) selling its stake didn’t hurt either.
Even an apparent decision to pull the United States out of the Paris climate change accord — which could impact subsidies beneficial to Tesla — and an ultimatum from CEO Elon Musk to President Donald Trump has done nothing to affect the bullish sentiment toward TSLA stock.
The strength of Tesla stock in the face of seemingly bad — or at least, not good — news shows why a short of TSLA is so dangerous. But it also leads to the question: at this point, what will it take for Tesla stock to decline? There are a few possibilities. The bad news for Tesla stock shorts is that they seem either unlikely — or far into the future.
Production Problems for Tesla
It’s easy to forget after the YTD strength in Tesla stock, but the company’s reputation for execution historically hasn’t been that great. Tesla actually missed its 2016 production guidance. The company delivered a bit over 76,000 cars, below initial projections of 80,000-90,000. In three of four quarters in 2016, Tesla missed its quarterly target as well (including Q4).
Another stumble could change the narrative around Tesla — and bring TSLA stock back to Earth. But, at the moment, execution seems reasonably solid. The company beat Q1 deliveries targets. Tesla insists the Model 3 will start shipping later this year, despite long-held skepticism on that front from some TSLA bears.
At this point, another stumble seems possible but unlikely. And given the strength in sentiment behind TSLA stock, it’s not clear that a missed timeline (or two) would even matter. Again, Tesla has missed a number of self-imposed deadlines in the past. The long case, meanwhile, is based on profits in 2025 and 2030 — not 2017 and 2018. It’s easy to imagine TSLA bulls and shareholders shrugging off any delay as immaterial to the long-term case for Tesla stock.
Competition for TSLA Stock
There were arguments that GM’s Chevy Bolt could be a legitimate threat to Tesla, particularly its more mass-focused Model 3. Those arguments seem unfounded. Bolt sales have been rather modest so far, and GM’s production rather light.
There are other potential entrants, of course — as well as the existing Leaf from Nissan Motor Co Ltd (ADR) (OTCMKTS:NSANY). Mercedes, BMW and Volkswagen AG (ADR) (OTCMKTS:VLKAY) have launches of their own. There are startups as well, including privately held Lucid and Fisker, and tech giants like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL) have their eyes on autonomous vehicles down the line.
But whether it’s due to branding or performance (likely both), Tesla seems to have a huge head start. And, again, as with the production question, even if a rival were to release a legitimate competitor, it almost certainly won’t be until next year at the earliest. Meanwhile, Tesla has set the bar so high — at least from a public opinion standpoint — that it seems, at the moment, like rivals are fighting for second place.
A better electric vehicle may come along, or Tesla may ruin its reputation with missteps of its own. Right now, however, neither seems likely. And neither seems even possible before 2018, at the earliest.
Investor Sentiment Toward Tesla Stock
Really, the only impediment toward further gains in TSLA stock is the market itself. At some point, the fact that Tesla stock has gained 90% just since early December will have to matter. The cries of “Tesla is overvalued!” will have to become louder than the response that “Tesla is at the forefront of a revolution.”
I don’t see that happening soon, to be honest. The reason Tesla is such a battleground stock is that its current stock price in essence is an argument about the future. Those arguments usually go to the optimists — until they’re proven wrong. With the addition of SolarCity, the new gigafactory in Nevada, and the potential of autonomous driving, Tesla’s market opportunity is almost limitless. As long as that’s the case — and it will be a while — then Tesla stock will have the ability to climb.
There may be some speed bumps along the way, but at the moment, the road looks clear and wide open for TSLA stock.
As of this writing, Vince Martin has no positions in any securities mentioned.
