Forget about Tesla Inc (NASDAQ:TSLA) unveiling its prototype semitruck or new Roadster, the big news is October’s electric vehicle sales. The General Motors Company (NYSE:GM) Bolt outsold all three of Tesla’s vehicles — combined. That’s got to be bad news for TSLA stock, right?
Maybe not. Let me explain.
Competition Is Good
Do you ever notice that certain types of stores and restaurants tend to congregate in the same area? Where I live, there are two sushi restaurants side by side. The business rationale is that because a lot of sushi lovers walk the street, it makes sense to operate there and not in some other area where the demographics don’t work in your favor.
Sure, Tesla was supposed to be producing 20,000 Model 3s by now — it banged out just 260 between July and September and won’t hit 5,000 per month until March — but did anybody really believe Elon Musk’s bravado?
Writing about TSLA stock during the summer, I stated: “Tesla’s stock would be overvalued if it doesn’t hit monthly production of 20,000 Model 3s by the end of the year.”
It hasn’t and won’t come anywhere close, so I’m left with no choice but to label TSLA stock expensive at these production levels.
David Einhorn would undoubtedly second this opinion.
How TSLA Stock Regains Its Value?
Well, Tesla might distract investors momentarily by rolling out two future vehicles. But the only way it can justify a price-to-sales ratio nearing eight — GM is 0.38 and Alphabet Inc (NASDAQ:GOOGL) is right on eight — is to deliver 20,000 vehicles in a single month.
No ifs, ands, or buts.
Right now, through the end of October, Tesla’s sold 20,570 vehicles in 2017. This is better than any other competitor, including GM who’s sold just over 17,000 Bolts. But as I’ve already said, it’s nowhere near the production Tesla needs to justify its share price.
However, electric vehicles continue to gain ground with consumers. That’s bound to keep TSLA stock from cratering below $200 where it traded at the end of 2016.
“Overall, electric vehicle sales in the U.S. are booming,” wrote Mashable’s Mark Kaufman Nov. 3. “According to Inside EVs, October marks the 25th straight month of gains in U.S. EV sales, and over 157,000 electric vehicles have been sold this year — a notable 30 percent increase from 2016.”
A rising tide lifts all boats.
Just as the TSLA stock price traded between $150-$250 for the better part of three years until breaking out in 2017, I see it trending between $300-$400 until it turns the corner on production.
GM’s got big plans to bring 20 new all-electric vehicles to market by 2023.
“General Motors believes in an all-electric future,” Mark Reuss, GM Executive Vice President, Global Product Development, Purchasing and Supply Chain, said in a statement. “Although that future won’t happen overnight, GM is committed to driving increased usage and acceptance of electric vehicles through no-compromise solutions that meet our customers’ needs.”
Like the two sushi restaurants around the corner from my house, GM and Tesla can co-exist in an electric vehicle world just as the many car companies have co-existed for the last few decades selling gas-powered vehicles.
Are Strong Bolt Sales Good or Bad for TSLA Stock?
While I believe that competition is good for Tesla because it reminds Elon Musk and company that you’re not a car company if you don’t produce cars — electric or gas powered — eventually GM is going to figure out how to make money from the Bolts of this world.
When that happens, if Tesla is still missing production guidance, you can be sure TSLA stock won’t be trading in triple digits.
For now, it’s a wash, but that could change in the next 18 months should GM deliver two new electric vehicles as promised.
Until then, I’d be a cautious buyer of TSLA stock and an aggressive buyer of GM stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.