Why Tesla Stock Is Worth Buying As It Drops Back to $300

When it comes to Elon Musk, ignore the "mad" and focus on the "genius"

Tesla Stock Investors Are Finally Ignoring Elon Musk

Source: JD Lasica via Wikimedia Commons

Just when you thought the Tesla (NASDAQ:TSLA) saga couldn’t get any weirder, it gets weirder.

In case you haven’t been following the news lately, a soccer team of 12 boys and their coach were exploring a cave in northern Thailand when heavy rain caused water to trap the group inside the cave. Two weeks and a few heroic rescue missions later, all 13 members have been rescued from the cave.

What does any of this have to do with TSLA stock?

While the boys were trapped, Tesla CEO Elon Musk made a miniature submarine which he offered as a solution to help rescue the boys. But one member of the rescue crew, spelunker Vernon Unsworth, said in an interview with CNN that Musk’s submarine was a “PR stunt”, “had absolutely no chance of working” and that Musk could “stick his submarine where it hurts”.

Harsh words. But, never to be bested in the public spotlight, Musk fired back. In a series of tweets which have since been deleted, Musk called Unsworth a “pedo guy”.

In response to all this, TSLA stock is dropping.

Why? I can’t really tell you why. Musk’s Twitter war with a man who attacked him first (this was a two-way exchange) doesn’t inflict any damage on the company’s operations or long-term growth narrative. Instead, if you look at those aspects of Tesla, you will see that production is ramping and that everything is on track.

Thus, as TSLA stock closes in on $300 due to unrelated Musk Twitter commentary, I think this is an opportunity buy the dip.

Here’s a deeper look.

Take the Good With the Bad

When it comes to Elon Musk, investors have to take the good with the bad.

Musk is a mad genius. The “genius” part is celebrated. The “mad” part is criticized. But, at the end of the day, the “genius” part shows up in improved financials and positive stock price performance, while the “mad” part is largely constrained to Twitter (NYSE:TWTR) and conference calls.

Musk’s peculiar behavior on social media and elsewhere, wherein he attacks those who criticize him, is nothing knew. This has been going for as long as Musk has had the public spotlight. And yet, during that time-frame, Model S and Model X have gone from nascent ideas to full-scale production vehicles, Tesla has morphed into the premium brand in the secular growth electric vehicle space, and TSLA stock has roared from $20 to above $300.

The takeaway? Pay attention to the “genius” part of Musk. Forget the “mad” part.

Tesla’s Business Is Doing Well

TSLA stock is closing in on $300 after peaking at $370 just a few weeks ago. In other words, TSLA stock is acting like the bottom is falling out of the company’s underlying growth narrative.

That isn’t happening.

Instead, the opposite is happening. Model 3 production continues to ramp. According to Bloomberg, Tesla is producing about 3,500 Model 3 vehicles per week. At the beginning of the year, Tesla was producing only 350 Model 3 vehicles per week.

Granted, we still aren’t at that all important 5,000 vehicles per week mark on a consistent basis. But at the current production ramp rate, we will get there very soon.

In the big picture, then, Model 3 production ramp is progressing. It is progressing slower than expected. But it is still progressing. This is positive news. The previous big rallies in TSLA stock have been driven by new vehicle production ramps. Thus, as Model 3 production ramp accelerates in the back-half of the year toward 5,000 and more, TSLA stock could be in store for a big rally.

At $300, now seems like a good time buy in for this rally. The $300 level has been huge for this stock. Outside of the late March 2018 slaughter, TSLA stock has time and time again held the $300 level over the past year. Thus, as sentiment normalizes and investor focus shifts away from Musk’s peculiar tweets, TSLA stock should rebound off of $300.

Bottom Line on TSLA Stock

I still see this stock as one of the best growth opportunities over the next 5-10 years. That is the reason to hold TSLA stock for the long haul.

But in the near-term, the buy thesis is all about a stock that is overreacting to some irrelevant tweets. The sell-off has plunged the stock to levels that have historically acted as a support. Moreover, the sell-off has happened against the backdrop of improvements in the company’s underlying growth narrative.

As such, I think buying TSLA stock as it closes in on $300 is the right move.

As of this writing, Luke Lango was long TSLA. 


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Article printed from InvestorPlace Media, https://investorplace.com/2018/07/why-tesla-tsla-stock-is-worth-buying-as-it-drops-back-to-300/.

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