For nearly all of Tesla Motors Inc’s (TSLA) existence, I’ve been a confirmed bull, both in terms of the company’s all-electric vehicles as well as Tesla stock.
In fact, at my meeting with CEO Elon Musk in 2009 — approximately a year before Tesla went public — I was so impressed by the focus, intelligence and purpose Musk conveyed that I was convinced TSLA would not only be a winning product, but also a winning stock.
That insight proved prescient, as Tesla stock has delivered investors an incredible 1,300%-plus gain since going public at $17 per share on June 2010.
Of course, the really big gains for Tesla came during its glory days of spring 2013 to fall 2014. That’s when the stock vaulted from about $36 to just under $280. Things got choppy for TSLA after that, as aggressive sellers bet on Musk’s downfall while committed bulls remained full-throttle on the game-changing automaker.
So far in 2015, TSLA is up about 9%. That’s much better than the S&P 500’s year-to-date gain of less than 1%, but single-digit gains in Tesla stock aren’t exactly the kind of bullish electricity that shareholders have grown accustomed to in recent years.
That brings us to Tesla going forward, and the outlook for TSLA stock in 2016.
Mixed Messages From TSLA
When it comes to Tesla, there are die-hards in both the bear and bull camps.
The bear camp thinks 2016 will finally bring about a reality check for Musk & Co. This camp correctly cites some of Tesla’s rather uncomfortable financial metrics, such as its failure to make a profit, its lowered vehicle delivery forecasts and its negative cash flows.
Then there’s the very low price of oil and its distillate byproduct, gasoline.
A plunge in oil prices in 2015 has caused a big drop in the price of the fuel we put in our automobiles. Given that low oil prices are expected to stay pretty low (by historical standards) in 2016, the economics of buying a Tesla have been at least a little tarnished.
Of course, Tesla doesn’t make cars for the cost-conscious set. Both its Model S sedan and new Model X crossover SUV come at a hefty price, with models at the low end still around $70,000, and at the high end around $132,000.
The trouble Tesla faces is not having a big enough market for its all-electric luxury vehicles at such a luxury price tag. Tesla’s answer to this problem is the Model 3, which starts at just $35,000. The only problem with the Model 3 analysis is that it won’t have a material influence on Tesla’s bottom line for another couple of years.
The bull camp argues that Tesla’s Model X will help Tesla sell more vehicles than ever before in 2016, and the excitement over the lower-priced Model 3 also will help fuel bullish excitement in the shares.
While I think both of these things will be positives for TSLA stock in the year to come, being bullish on Tesla isn’t really about the numbers.
Tesla Stock About More Than Numbers
The way I see it, the reason to be bullish Tesla stock has far less to do with the number of Model S, Model X or future Model 3s that are sold, and much more to do with promise and vision. In November, Morgan Stanley issued a bullish note to clients saying that a series of developments in 2016 will be crucial to understanding Tesla’s story and its “bigger mission.”
While acknowledging that Tesla will continue to burn cash through Q4 and into 2016 — as much as $1 billion over the next 12 months — analyst Adam Jonas wrote, “We think longer-term ambitions of how Tesla advances the state of sustainable transport has significant room for appreciation by the market.”
Jonas also issued a $450 price target on the shares — very bullish, indeed.
What that means is Tesla remains a disruptive game changer in the auto industry as well as the technology segment, and that’s what’s really driving its price.
The reality of the past, and likely reality in the future, is that bullish bets will continue to fuel TSLA stock in 2016, regardless of the strength of the company’s top and bottom lines.
Will those bullish bets be enough to keep the bears at bay in the year to come?
That’s what we’re about to find out.
As of this writing, Jim Woods was long TSLA.