Tesla Inc (NASDAQ:TSLA) sold off hard following a fourth-quarter earnings report that fell short of the market’s lofty expectations. Despite reporting better-than-expected revenue of $2.28 billion on the quarter, Tesla stock delivered an earnings loss much larger that the market anticipated.
As Tesla stock was already up more than 26% year-to-date headed into earnings, it’s not surprising that the stock sold off.
I’ve written many times about the dangers of investing in Tesla stock at its current market valuation.
Tesla’s 2017 run pushed the stock’s market cap to around $45 billion, roughly in line with that of Ford Motor Company (NYSE:F). It’s difficult to fathom such a high valuation for a company that shipped just 76,000 vehicles last year and burned through another $448 million in cash in Q4.
The market may have higher hopes for Tesla stock than any other stock on the market. But long-term TSLA bulls don’t care about Q4, or even 2017 for that matter. They aren’t just investing in an auto company. They believe Tesla Inc. will change the world.
The Tesla Stock Bull Case Is About Quality
Tesla stock bulls believe that it doesn’t matter how many cars the company delivers in the short term. They feel the autonomous driving technology that CEO Elon Musk is developing will make Tesla vehicles the best in the world in the next decade.
General Motors Company (NYSE:GM) has gotten a head-start on the long-range electric vehicle mass market. But TSLA appears to be on track to be the first to market with a fully-autonomous vehicle.
Last year, Elon Musk tweeted that Tesla had already driven 222 million cumulative autopilot miles. Those miles are extremely important because the precious data they provide, which allows for fine-tuning the technology. By comparison, Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo driverless car has logged only about 2 million miles of data.
If Tesla is the first to market with a driverless car, its data advantage will quickly compound exponentially. That huge advantage could make it very difficult for competitors to catch up.
TSLA Stock Valuation Not an Issue
The scariest part about Tesla stock for most investors is its valuation. The stock already seems to have priced in tremendous long-term success.
Compared to auto rivals Ford and GM, Tesla’s valuation is bordering on absurd. Ford and GM, however, may not be Tesla’s most appropriate peers. In fact, bulls might argue that TSLA stock is much more similar to Amazon.com, Inc. (NASDAQ:AMZN).
Loup Ventures recently argued that Tesla stock today looks a lot like AMZN stock back in 2009. Both companies have been struggling to turn a profit. Both stocks have also already delivered huge gains in relatively short amounts of time.
“Today, Amazon still struggles to make money, but shares have risen 10x over the past 8 years and are near all time highs,” Loup writes. “Amazon had the roadmap for the future of commerce and web services, similar to Tesla’s roadmap to pursue the future of auto and solar, based on their core competencies in AI and robotics.”
Tesla Controls Its Own Destiny
As long as the market keeps its appetite for growth, Tesla’s projected 16%-22% CAGR in vehicle sales through 2025 could be plenty to keep the stock on an upward trajectory for the next decade. TSLA bulls need not even concern themselves with the electric vehicle fleets from GM or Ford. If Tesla can deliver the world’s first and/or best driverless car, it is well on its way to securing a major long-term growth source.
In the meantime, Tesla stock will likely continue to defy value investors. If TSLA is the new AMZN, bulls can ignore earnings, debt, P/E ratio, competition and pretty much everything else about Tesla’s business. As long as the company continues to deliver Amazon-like growth, Tesla stock may deliver Amazon-like gains.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
