Since I last wrote about Tesla Inc (NASDAQ:TSLA) and Tesla stock on Sept. 27, a lot appears to have happened.
At that time, I reiterated my view that TSLA is a bubble stock. Now, it has announced production delays, with critics charging its cars are being made by hand, the company is continuing to lay off workers and there are short sellers crowing about making $160 million on their bets.
But do you know what has happened to Tesla stock since Sept. 27? Nothing. By the end of trade Oct. 9, Tesla stock was down less than 1%; by the closing bell on Oct. 10, Tesla stock was up 4.3%.
The larger story is both better, and worse, than it appears.
Tesla Stock Will Be Fine
First, making cars is still hard.
It is not surprising that Tesla is falling slightly short of ambitious production targets, but cars are being produced, in quantity, and there are willing buyers for those cars.
Tesla is due to report earnings Nov. 1, with analysts expecting a loss of $2 per share on revenue of $2.97 billion. The company is still on track to approach $12 billion in revenue, against $7 billion last year, a growth rate tech stocks like Alphabet Inc. (NASDAQ:GOOG, GOOGL) can only envy.
For that reason, many Tesla bulls are staying the course. Luke Lango says don’t sweat it and Serge Berger likes Tesla stock for a trade. Morgan Stanley (NYSE:MS) has raised its price target on the stock by 20%.
Tesla is becoming less of a car story and more of an energy story. Revenues from its solar roofs and battery systems is rising faster than its car revenue, and reached 10% of the total in the second quarter. That growth will continue. Demand for such systems is exploding as their costs come down.
You might think from this that I have become a raging Tesla bull. You would be wrong.
The Change Tesla Does Not Need
As cool as electric, self-driving cars seem, there remains a contradiction at the heart of the promise.
If the car is self-driving, the business model changes from personal ownership to corporate ownership, from buying the hardware to buying the service. In that environment, cool design counts less than basic functionality. Tesla is on the wrong side of that future.
By the time Tesla brings in enough revenue to justify a valuation of $58 billion, the world will have changed fundamentally, and its vision will have become out of date. The run rate on its batteries and solar products remains at barely $1 billion. Tesla’s big numbers come from selling cars.
Tesla critics are waiting for Elon Musk to fall short of his production promises by enough for it to matter. They are looking at tactics, not strategy.
What happens with bubble stocks, as we saw with internet stocks a generation ago, is that an event occurs that shows us the maximum value such stocks can have — at which point investors start worrying about how far down the floor is.
That has not happened yet. The power of Tesla’s rivals to beat it in batteries is constrained by their own lack of production and the difficulty of ramping up that production. It’s the batteries, not the cars, that are the long-term play. But the battery business is never going to justify a $58 billion valuation.
Fundamentals pop a bubble. Ignore Tesla’s makes or misses on car production. Focus on the day when someone questions the idea of buying a car at all.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in any companies mentioned in this article.