This past year was full of highs and lows for both Tesla (NASDAQ:TSLA), the company, and Tesla stock. As we head into 2019, I believe that 2019 will be a big year for Elon Musk and the maker of the world’s top-selling electric vehicles.
Yet, as I write this, Tesla stock is off by more than 7% Jan. 2 on news it didn’t quite deliver as many vehicles in the fourth quarter as analysts were expecting. Add to that a 50% cut in the federal tax credit for buying a Tesla, and it’s easy to see why investors got spooked by the news.
Long-term, however, like a lot of what happened in 2018, it’s just noise. In a month or two, investors will have forgotten why they were so concerned about these two pieces of news.
Tesla, one of America’s greatest innovators, will continue to battle the odds in 2019. By the time Dec. 31 rolls around, I believe Tesla will have won a lot more battles than it has lost over the past year.
Here are seven reasons why:
Tesla Stock Will Win in 2019: It’s Got a Bigger Board
Not only did Tesla separate the CEO and chairman’s roles in 2018, it also added two veteran business people to its board on Dec. 28: Oracle (NYSE:ORCL) founder Larry Ellison, who bought 3 million shares of Tesla stock earlier this year, and Walgreens’ (NASDAQ:WBA) executive vice-president and global chief human resources officer Kathleen Wilson-Thompson.
Ellison brings more than 50 years of tech experience to the table while Wilson-Thompson brings an understanding of how a large company is supposed to act, especially one that’s publicly traded.
Tesla was forced by its settlement with the SEC to add some oversight of Musk. While there are complaints Ellison is a friend of Musk’s, and Wilson-Thomson’s HR experience isn’t industrial, I don’t know how Tesla shareholders can’t view the expansion of its board by two highly qualified candidates as anything but a good thing.
Tesla Stock Will Win in 2019: It Will Continue to Innovate
One of the things that first attracted me to Tesla and Elon Musk was the drive to innovate.
“Tesla’s ability to prosper and grow isn’t good just for shareholders, it’s good for America,” I wrote in October 2012. “Innovation made the U.S the world’s leading economy — and that’s what will keep it there.”
More than six years have passed since I wrote those words. In my opinion, nothing’s changed. Tesla prospering is good for America, not just its shareholders. Computerworld contributor Rob Enderle recently wrote about innovation comparing Tesla with Ford (NYSE:F).
“What makes Musk different is that while he may be borderline nuts, he executes. Jobs wasn’t exactly the most stable person I’ve ever known either, but man could he execute. If he wanted it done, it got done,” Enderle stated Dec. 21 … “Innovation comes with risk. If you aren’t willing to take the risk, you can’t innovate.”
As we move into 2019, I bet that Elon Musk continues to be willing to risk, putting Tesla miles ahead of Ford and the rest of the traditional auto manufacturers.
Tesla Stock Will Win in 2019: Elon Musk Will Get Some Sleep
Elon Musk’s leadership style, while extreme, is compelling. Long-term, however, he’s got to learn that a tired CEO isn’t good for the company’s overall success.
By sleeping at the plant and working 120 hours a week, Musk is demonstrating a massive need to control every inch of the company’s business. While his desire to drive the business 24/7 is admirable, it’s just not practical, and in the worse case, is micro-management pushed to the limit.
And anyone who’s ever run a large business knows, micromanaging rarely works.
“There’s been relentless criticism, relentless and outrageous and unfair. Because what actually happened here was an incredible American success story,” Musk told 60 Minutes reporter Leslie Stahl in December. “All these people work their ass off day and night to make it happen. And they believe in the dream. And that’s the story that really should be told.”
He’s not wrong.
However, I believe that board members such as Wilson-Thomson as well as board chair Robyn Denholm — appointed in November as part of SEC settlement separating CEO and chairman’s roles — will convince him that micromanaging to the nth degree can end in 2019.
Tesla Stock Will Win in 2019: It Will Deliver More Vehicles Than Ever
While investors didn’t like the news Tesla delivered 90,700 vehicles in the fourth quarter, 2,000 short of analyst expectations, it’s important to remember that the electric car maker produced 86,500 vehicles in the quarter, 8% more than in the third quarter. More importantly, Tesla delivered 63,150 Model 3s during the quarter, accounting for 70% of its deliveries and an average of 5,263 per week.
In the fourth quarter of 2017, Tesla delivered 29,870 vehicles. A year later it delivered 204% more vehicles in the same three month period. If Tesla achieves this increase in Q4 2019, it will deliver more than 185,000 vehicles, a massive number for a company that’s only got three vehicles at the moment.
It’s hard to imagine Tesla increasing vehicles by 200% in Q4 2019. However, I’m confident its 2019 deliveries will be much higher than the 245,240 it delivered in 2018.
Tesla Stock Will Win in 2019: It Will Be More Profitable
Investors and analysts have been clamoring for Tesla to make money on a consistent basis for a long time.
“I can’t get behind the company at all,” Mark Tepper, president and CEO of Strategic Wealth Partners, said on CNBC Dec. 10. “It’s still a gamble and that doesn’t mean that the stock price can’t go up, but I’m sure as heck not going to sit here and hold my breath while they figure out whether they want to run out of money or actually make some money.”
The fact is, Tesla produced a GAAP profit of $312 million in the third quarter and likely will deliver back-to-back profitable quarters for the first time in the company’s history, a significant accomplishment for a carmaker that the short’s feel can’t get its act together.
Yes, it’s still burning a lot of cash, and the $2,000 cut in prices to offset the 50% cut in the federal tax credit, will likely affect margins in the short term. In the long-term, it will make the vehicle more affordable without the buyer tax incentives leading to increased volumes, especially for the Model 3.
“Investors who are willing to take a longer-term view of the story will be rewarded handsomely,” CFRA analyst Garrett Nelson recently noted. “We continue to believe Tesla is on track to post one of the market’s most robust year-over-year earnings increases in 2019.”
The rubber meets the road in 2019.
Tesla Stock Will Win in 2019: Electric Continues to Take Market Share
Every auto manufacturer on the planet’s been forced by Tesla to go electric in a hurry. General Motors’ (NYSE:GM) and Ford’s huge restructuring plans are, in my opinion, in large part caused by the move to electric vehicles.
Both have too many legacy vehicles that just aren’t selling well and will sell even worse a year from now.
According to the International Energy Agency, the number of electric vehicles globally will grow from 3 million at the end of 2017 to 125 million by 2030, an annual growth rate of more than 18%.
By the time we get to 2030, electric vehicles could account for approximately 6% of the world’s total. While that might not seem like a lot, the number of electric vehicles in the world in 2017 grew by 54%, significantly outpacing fossil fuel-powered vehicle growth.
One only needs to travel to Norway — electric vehicles accounted for 6.4% of the country’s vehicles in 2017; number one in the world with electric vehicles accounting for 39% of Norway’s new car sales in 2017 — to understand that electric vehicles will be the norm 50 years from now.
This fact won’t necessarily affect what happens to Tesla stock in 2019, but it’s an indication of where it’s headed should it continue to improve its finances.
Tesla Stock Will Win in 2019: The Shorts Grow Impatient
This more than anything could well be the biggest reason why Tesla stock hits $3,000 by the end of 2019. Like the longs, those short-selling Tesla had a crazy ride in 2018; investors can expect 2019 to be equally as volatile.
Well-known TSLA short seller Andrew Left of Citron Research switched from a short position to a long one in October citing the success of the Model 3 as a big reason he was reversing course. Left also pointed to the institutional investors jumping on Tesla’s bandwagon as evidence the risk/reward ratio is getting much healthier.
In 2019, I expect many more shorts to see the light, and either exit their positions or do what Left did and join the dark side with all the other longs.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.