About a week ago, Tesla Inc (NASDAQ:TSLA) CEO Elon Musk once again declared that TSLA stock is overvalued. Musk made the comment when holding court at the National Governors Association meeting where he said, ‘‘Our stock (TSLA) price is higher than we have any right to deserve.”
Musk then took to Twitter Inc (NYSE:TWTR) the following day and made an even more cryptic remark, tweeting that the stock price is high “but low if you believe in Tesla’s future. Place bets accordingly.”
That marked the second time in as many months that Musk talked down TSLA stock by calling the shares overvalued, and the third time since the Model 3 was first unveiled in 2016. In the previous two instances, TSLA stock was hammered quite viciously in a matter of months. The latest selloff came after TSLA barely managed to squeak by Model S and Model X delivery targets for the first half of the year.
The exact reason why Musk has been talking down TSLA stock at a frenetic pace might seem like a bit of a head-scratcher at the moment, but that’s only if you are buying the stock for the wrong reasons.
TSLA Stock Choppy in the Near Term
With the first batch of Model 3s slated to be delivered on Friday, July 28, Tesla is facing the biggest test in its 14 years of existence. You can easily tell this by looking at TSLA stock. Shares have been on a roller coaster ride for the past month, falling or climbing by a big margin on even relatively light news.
TSLA stock tanked nearly 20% earlier in the month after the company slightly undershot its Q2 delivery target, raising fears that the cheaper Model 3 was cannibalizing the older, higher-priced models. Tesla stock has been choppy ever since, putting up several half-hearted rallies before running in reverse numerous times.
The most important thing, though, is for investors to note that all this is built on pure speculation. Nothing negative about Model 3 delivery timelines has come from the company, at least not on any official platform. In fact, to the contrary, Elon Musk has lately been giving upbeat tidbits on the Model 3.
On July 3, Musk tweeted (it was on a Sunday just in case you missed it):
“Model 3 passed all regulatory requirements for production two weeks ahead of schedule. Expecting to complete SN1 [Serial Number 1] on Friday…Handover party for first 30 customer Model 3’s on the 28th! Production grows exponentially, so Aug should be 100 cars and Sept above 1500… Looks like we can reach 20,000 Model 3 cars per month in Dec.”
Some investors will argue that taking to Twitter does not qualify as official communication. Perhaps so, but I would counter by pointing out that no news is good news at this stage. If there were any substantive changes to delivery timelines, the least you would expect is for the company to update investors on the situation.
So, we can surmise that everything remains on course and the sharp production ramp will take place as planned. Electrek has reported that Tesla plans to soon open up its Gigafactory in Sparks, Nevada, for regular tours. This implies that it’s not far from achieving the ”alien dreadnought” status that Musk said is required to meet the company’s lofty production goals.
If anything, investors have lately been downplaying some significant announcements by the company.
Exemptions for Self-Driving Cars and Rebate Programs
About the same time that Musk chimed with the bears’ view of TSLA stock, a new report emerged that a House panel has approved a proposal that will allow automakers to deploy as many as 100K self-driving vehicles without having to meet existing safety rules.
This is the first significant federal legislation that has been crafted to speed up the process of bringing self-driving cars to the market. It’s a major win for Tesla, General Motors Company (NYSE:GM) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) who have been lobbying Congress to override rules that limit the deployment of self-driving vehicles. 100K vehicles may not seem like much in the grand scheme of things for a company that’s planning to sell at least 500K vehicles every year starting 2019, but it would be a huge step forward and give autonomous driving considerable impetus.
Meanwhile, the LA Times reported that California lawmakers have enacted a bill that will boost electric car rebates by $3 billion in a bid to lower greenhouse emissions. Only pure EV makers like Tesla and GM need apply — plug-in hybrids and fuel cell vehicles, two classes currently covered by the state’s current program — have been exempted.
I believe that these two developments are an excellent contemporaneous indicator of where the EV market is headed, and a big vote of confidence for Elon Musk, who has consistently believed in the future of pure EVs and self-driving vehicles.
TSLA Stock Remains Good for the Long Haul
Going forward, the bears will be watching hawk-eyed for any missteps by Tesla on the Model 3, and Elon Musk knows this. If you cannot withstand stomach-churning volatility, perhaps it’s better to wait until the first full quarter of Model 3 deliveries is in so that you can place your bets.
The mean Model 3 reservations on Tesla’s books are currently hovering around the 500K mark. As Elon Musk succinctly put it, TSLA stock is only good if you believe in the company’s future.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.