My vote for the most polarizing stock in the market goes to Tesla Inc (NASDAQ:TSLA). The bears think Tesla is just one big bubble, implying that TSLA stock is one of the best short opportunities ever. The bulls think TSLA is just getting started in its takeover of the auto market, implying TSLA stock is one of the best long opportunities ever.
Who’s right?
No one has a Magic 8-Ball, so it’s tough to tell. On one hand, TSLA does trade around 5 times this year’s sales estimate, despite being hugely unprofitable. Furthermore, the company has a tough time hitting delivery targets and competition in the electric vehicle space will undoubtedly ramp up into the foreseeable future.
On the other hand, TSLA is expected to do more than $20 billion in sales next year and analysts see the company turning a profit in 2019. What’s more, the company just rolled out its affordable Model 3 offering, which should dramatically widen its customer base. And regardless of competition, Tesla is the most recognizable brand name in the electric vehicle space.
So again, who’s right?
I side with the bull thesis on TSLA stock.
Here’s why…
Say Hello to the Era of Tesla and Electric Vehicles
The global electric vehicle revolution is here.
No matter what the TSLA bears say — not enough charging stations, car enthusiasts like good ol’ diesel vehicles, production costs are too high, etc. — there is no denying that governments across the world are starting to really push forward with their all-electric vehicle dreams.
India is making a huge electric car push. In fact, the country is committed to selling only electric cars by 2030.
Why?
Two big reasons: Firstly, pollution is a huge problem there. Air pollution accounts for about 1.2 million deaths per year. Secondly, India has a booming population and that means they have a booming oil-dependence problem. India is the world’s third-largest oil importer, paying roughly $150 billion annually. It is estimated than an electric vehicle revolution could save the country up to $60 billion in energy costs.
The same push is being made in China for the same reasons. Current trends indicate that new energy vehicles should account for roughly 40% of total vehicle sales in China by 2030. A ban on the sale of diesel and petrol cars could hasten this electric vehicle shift.
Meanwhile, countries throughout Europe are committed to the future of electric vehicles.
Both Britain and France are determined to end the sale of diesel and petrol cars by 2040. Norway, the world’s leading country for electric vehicle adoption (22% electric vehicle market share in 2015), is targeting 2025 as date for 100% low- to zero-emission car sales. The goal in the Netherlands, where electric vehicle sales have taken off recently, is for electric car sales only by 2025.
Then there is a whole bunch of countries that haven’t officially penned dates for 100% electric vehicle sales, but are doing everything short of that.
Germany is eyeing a 2030 date for 100% electric car sales. Austria is building out its charging station network to promote higher electric vehicle usage. The number of electric and hybrid vehicles in Spain is spiking — and that trend looks like it’s just beginning. Denmark has more charging stations for electric cars than petrol stations; same with Japan. South Korea is trying to grow its still very small electric vehicle market by offering incentives.
All of this is great news for TSLA stock.
After all, it is nearly impossible to have a discussion about electric vehicles without mentioning Tesla. The company has become the poster child for the electric vehicle revolution.
And now the company is out with an affordable offering at the perfect time. Just as countries across the globe are starting to aggressively phase out petrol and diesel vehicles, Tesla is going mass-market with its $35K Model 3.
It’s the perfect product at the perfect time.
Bottom Line on TSLA Stock
It’s easy to look at this stock and say it is overvalued. After all, the sales multiple is huge and there are no profits; the leverage on the balance is concerning; cash flows aren’t pretty.
But TSLA stock keeps heading higher because the future keeps getting brighter — and this will continue as electric vehicle adoption goes mainstream. The affordable Model 3 will be at the heart of this electric vehicle revolution.
That makes Tesla a big winner for the next 10-plus years.
And it also makes the bull thesis on TSLA stock a lot stronger than the bear thesis.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
