Tesla Motors Inc (NASDAQ:TSLA) has had quite a rough go since September, with shares of TSLA stock falling almost 30% on fears of a top in the electric vehicle company.
In fact, David Stockman, a former director of the Office of Management and Budget under President Reagan and apparently a stock picker over at Casey Research, took to the web the other day to eviscerate Tesla.
Stockman called TSLA stock, among other things, a “crony capitalist con job,” just “a red-ink-spewing rank speculation” and that the “bubble will collapse.”
That’s a load of hooey.
For starters, I find it interesting that a man who served as a Congressman from Michigan would be so eager to badmouth an automaker that took taxpayer money — particularly because Tesla is actually innovating and building new products, not just soaking up cash to fund overly generous UAW pensions like Government Motors. Oops, I mean General Motors Company (NYSE:GM).
Secondly, Tesla is not a money-losing operation. While it did indeed take government money to get up and running, Tesla Motors actually repaid Uncle Sam 10 years ahead of schedule and has been posting a quarterly profit periodically — and the biggest reason it’s not consistently profitable is because it’s investing heavily in future growth, as growth stocks tend to do.
While some of its income does come from credits and its buyers do get tax breaks, it’s naive and unfair to state that the $3.2 billion in revenue for TSLA stock in fiscal 2014 was just a fiction created by crony politicians and government handouts.
Tesla is legit — and TSLA stock may even be a good buy for investors on this pullback.
TSLA Stock, Like All Momentum Darlings, Is All About Sentiment
The important thing to remember is that Tesla Motors is not a typical automaker. I tire of the lazy Tesla stock analysis that makes comparisons to GM, where investors point to the fact that General Motors sells about 10 million vehicles last year and has a $60 billion market cap, while Tesla hopes to deliver about 55,000 cars in 2015 and is valued at $26 billion.
So what, you think Tesla should only be valued at $6,000 per car like GM, for a market cap of $330 million — a crash of almost 99%?
The truth is that Tesla is one of these momentum darlings that investors actually enjoy paying a premium for … as long as it continues to go up. And the problem with TSLA stock lately is that momentum has rolled over and continues to be negative, so it’s easy to kick this once-dominant stock around.
Click to Enlarge But after breaking under $200 briefly in January, Tesla stock has stabilized and the negativity seems to be ebbing. That is not necessarily a sign that it will skyrocket back to $290 anytime soon, but it is indeed a good indicator that the worst is over. Technical indicators in September were downright ugly, but since then the charts have seen both RSI and the moving averages come back into reasonable ranges.
I, for one, don’t read too much into the short-term financials — including the worse-than-expected loss posted a few weeks back. Tesla earnings are interesting, but the growth trajectory of the company in regards to its vehicle production ramp and the launch of its new lines like the Model X SUV are much more important to future growth.
Investors still are taking a big leap of faith, of course, that production and sentiment will remains strong in 2015 after this recent pullback. But TSLA stock seems to have stabilized and short interest in Tesla has finally started to recede from its January peak of almost seven days to cover.
With due respect to Mr. Stockman, an analysis of Tesla’s capital structure and reliance on some kind of government subsidy in its early days is mildly interesting, but many corporations get sweetheart deals from the government — and many of them do so in less palatable ways than Tesla.
What TSLA stock investors should focus on is the sentiment and the hopes of a rebound in 2015 now that the worst is over.
That doesn’t guarantee that Tesla will become the next dominant manufacturing company, or even that it will be around in 10 years.
But momentum stocks like Tesla are meant to be a target of swing-trades, not philosophical ramblings about how the government structures the tax code or what the state of American manufacturing will look like in 2020.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
