Tesla vs. Bitcoin: Which Is the Greater Fool’s Investment?

TSLA stock has a longer track record of coming back from dumps than Bitcoin

By Brian Wu, InvestorPlace Contributor


It’s about a week since Tesla (NASDAQ:TSLA) turned in an ugly Q3 earnings report, missing EPS estimates by a mile and pinning the blame on a slower-than-expected Model 3 ramp. Tesla subsequently shifted the initial goal of 5,000 Model 3 deliveries per week from the end of 2017 to the end of Q1 2018, something that had investors running for the hills. Tesla stock has tanked nearly 10% since the event, further compounding another selloff of nearly the same magnitude in the run-up to the earnings call.

Source: Tesla

Never mind that Tesla pointed a finger at its suppliers:

“To date, our primary production constraint has been in the battery module assembly line at Gigafactory 1, where cells are packaged into modules. Four modules are packaged into an aluminum case to form a Model 3 battery pack. The combined complexity of module design and its automated manufacturing process has taken this line longer to ramp than expected. The biggest challenge is that the first two zones of a four zone process, key elements of which were done by manufacturing systems suppliers, had to be taken over and significantly redesigned by Tesla. We have redirected our best engineering talent to fine-tune the automated processes and related robotic programming, and we are confident that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than the original specification.”

Whether that statement is based on fact or just another case of classic Tesla hubris is open to debate. Nevertheless, TSLA stock is being raked over the coals, and the shorts cannot seem to offload it fast enough. With a current RSI reading of 23.15, TSLA stock is firmly in oversold territory.

The Bitcoin Marvel

For Tesla bears, the sky must look as if it’s falling. Some investors are now suggesting your should sell your TSLA shares and put the money in Bitcoin. It’s not too hard to sympathize with that group of investors. After all, Bitcoin has climbed 17% over the timespan that TSLA has cratered. Further, Bitcoin has climbed 750% in the year-to-date, dwarfing TSLA stock’s 40% gain. At a market cap of $196 billion vs. $51 billion by TSLA stock, Bitcoin’s market cap is nearly 4 times bigger than Tesla’s, making those gains appear even more impressive.

Six months ago, I opined that Bitcoin was climbing at too torrid of a pace. I predicted that a crash was imminent. As a matter of fact, Warren Buffett still thinks cryptomania will end badly. But, boy, was I wrong. Although Bitcoin has gone through a number of corrections since then, it has always promptly recovered, every single time without fail. The last major correction came when China banned ICOs in September. Yet, Bitcoin shrugged it off and has continued taking out new highs like there’s no tomorrow. Now, I can’t help imagining how much this guy who took out a $325,329 equity loan on his house and put it into Bitcoin must be gloating after seeing his investment quadruple in less than six months.

TSLA Stock and Bitcoin parallels

Interestingly, investor and expert opinion on TSLA stock and Bitcoin remains deeply divided. Michael Pachter of Wedbush Securities once described Netflix, Inc. (NASDAQ:NFLX) stock as a greater fool’s stock. What he meant is that people buy NFLX stock, despite the company’s razor thin profits, primarily because of the endearing growth story. They then look for even greater fools to take it off their hands — at a profit. The same analogy applies to Tesla, especially now that the company’s losses are widening.

In equal measure, investors like Buffett have pointed out that cryptocurrencies like Bitcoin are not value-producing assets. Thus, they are nothing more than a bubble waiting to burst. After all, cryptocurrencies cannot generate any earnings or even pay any dividends. Even one of their greatest redeeming features — extremely difficult-to-hack blockchain algorithms — might come under attack once quantum computers eventually become powerful enough.

TSLA Stock’s Ability to Bounce Back

But that’s not where the similarities between TSLA and Bitcoin end. If you are a Tesla investor wishing that TSLA stock had Bitcoin-esque resilience, then you need to stop wishing. TSLA stock actually has a longer track record of coming back from the dumps than Bitcoin. I believe that it’s not going to be any different with Model 3. Admittedly, TSLA stock has a checkered history with its seemingly unreachable deadlines. The stock has sold-off heavily every time it has missed a major milestone. It happened with the belated Model S launch in 2012; the ModelX  in 2015, and now the Model 3.

Yet, TSLA stock has always bounced back, every time without fail. Sure, Tesla has never attempted to be a mass manufacturer of EVs before. But then, it has already begun upping its game to that end. Tesla has abandoned its old playbook of developing nearly everything in-house and just acquired Perbix Machine Company, a company that has been responsible for supplying it with high-tech manufacturing and engineering services over the past three years. Model 3 will feature the most automated production line of any vehicle. Coupled with Tesla high level of vertical integration, that should be able to keep production costs low. It will probably even eke out a profit from the $35,000 car.

Tesla vs. Bitcoin verdict

Given the ongoing Bitcoin momentum, there’s a pretty good chance that the leading cryptocurrency will cross $10,000 in a matter of months. Even the fabled $100,000 might be in the crosshairs in a few years’ time. After all, the crytpocurrency market is worth ”just” $200 biollion. That’s a long way off before it can challenge the $37 trillion combined value of the world’s fiat currencies. The China regulatory fiasco has just proven that trying to short Bitcoin is akin to jumping in front of a speeding train. Better go with the flow here, so do buy some Bitcoin.

Selling your TSLA stock, on the other hand, and putting the money into Bitcoin might not be as gutsy, or foolhardy, as taking out a huge loan and throwing it all at the grandaddy of virtual currencies. Still, I think there’s are many stocks with a far worse risk/reward profile than TSLA. Going by its past record, Tesla should eventually be able to solve its manufacturing issues. A delay of a quarter or even two will suddenly look like a minor blip in the grand scheme of things. Indeed, I belong to Loup Ventures Gene Munster’s school of thought that sees Tesla set to become one of the best large- cap stocks over the next five years. TSLA stock seems to have found a floor just above $300, and I cannot see any major surprises ahead. It might be a good idea to double down now.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/tesla-vs-bitcoin-which-is-the-greater-fools-investment/.

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