Shares of Tesla (NASDAQ:TSLA) tumbled lower through the first five months of 2019 as Wall Street seemed to throw in the towel on the Tesla stock.
Specifically, Wall Street interpreted falling delivery numbers from Tesla in early 2019 as a sign that demand was wavering and competition was building, a double headwind that would ultimately doom TSLA stock. As this thesis became the consensus, Tesla dropped from $330 to $175.
But, I think Wall Street dramatically misinterpreted this situation.
Falling delivery numbers from Tesla in early 2019 were not a sign of slowing Tesla demand or competition building. Instead, they were a sign that the whole EV market needed to take a breather after a gang-busters multi-month stretch to end 2018. That breather is now over. The EV market is finally ramping back up. As it does, Tesla’s delivery numbers are moving significantly higher.
That’s why TSLA stock is bouncing back in June. Investors are starting to realize that the Tesla growth story isn’t dead. Instead, it just took a breather, and is now ready to get back to firing on all cylinders.
Because of this, and because Tesla stock fell so far on a flawed bear thesis, the mid to late 2019 recovery in TSLA stock has a long runway to push the stock significantly higher. Broadly, that means now looks like as good a time as ever to get bullish on TSLA.
The Tesla Growth Story Is Far From Over
The big bear thesis which dragged TSLA stock down from $330 to $175 centered around falling demand. Tesla went gang-busters in late 2018 with the Model 3 production and delivery ramp. Following that huge ramp, production and delivery numbers fell sharply in early 2019.
Investors and analysts interpreted that drop to imply falling and saturated demand, which coupled with rising competition, painted a bleak picture for Tesla’s growth narrative over the next several years.
But that big bear thesis is flawed.
In reality, the Tesla growth story is far from over. Just look at the attached chart. Despite calls for Tesla to succumb to competition in the EV market, Tesla’s share of the U.S. EV market has consistently grown over the past two years. At the end of 2017, Tesla controlled about 25% of the U.S. EV market (on a trailing twelve-month basis). Model 3 ramp in 2018 pushed that share to just north of 50% to end 2018. In mid-2019, Tesla’s trailing-twelve-month market share in the U.S. market has closed in on 60%. 
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In other words, relative to the entire EV market, Tesla vehicle demand has not cooled at all in 2019. If anything, it has continued to heat up.
But, Tesla raw delivery numbers did drop in early 2019. That was a byproduct of EV market weakness. Broadly, U.S. consumers went all in with the Model 3 in late 2018. Through the first half of 2018, EV market growth rates hovered in the sub-50% range – they jumped to 100%-plus in the back half of 2018. That growth ramp exhausted and depleted demand in the short term. Growth rates fell in early 2019, and Tesla’s growth rates dropped, too.
Broadly, then, the Tesla growth narrative remains alive and well. The EV market was hit by some demand exhaustion in early 2019. That demand exhaustion won’t last forever. Demand growth will come roaring back, and when it does, TSLA stock will surge higher.
The Trends Will Only Improve
The underlying trends supporting the EV market and TSLA stock will meaningfully improve as 2019 progresses.
On the EV front, weak demand to start to 2019 is a byproduct of the late 2018 Model 3 surge pulling forward EV demand from 2019. The further we get from the late 2018 Model 3 surge, the less pronounced this pull forward impact will be on current demand.
Indeed, from February through May 2019, EV market volume growth rates in the U.S. have climbed from 0%, to 5%, to 8%, to 17%. This trend will continue, and the market should return to 40%-plus growth by the end of the year.
Tesla will naturally benefit from this resumption of big growth in the U.S. EV market.
Further, there’s reason to believe Tesla’s market share expansion narrative will persist, too. The company hopes to start production of the Model Y later this year, and a new vehicle should help broaden and elevate total Tesla vehicle demand share.
Further, Tesla is planning on refreshing the Model S, a move which should reinvigorate demand for what has become a tired vehicle. Tesla is also going to start producing vehicles in its Shanghai factory soon, and that could stoke international demand.
All in all, not only is the Tesla growth narrative far from dead, but it’s about to get a lot better. As it does, I wouldn’t be surprised to see TSLA stock rally back towards $300.
Bottom Line on TSLA Stock
The bear thesis which killed Tesla stock in early 2019 was flawed. It didn’t understand that Tesla’s decline in delivery volume in 2019 had nothing do with declining Tesla popularity, and everything to do with EV market exhaustion after a gang-busters late 2018.
That EV market exhaustion is now fading away, and the EV market is bouncing back. As it is bouncing back, Tesla’s delivery volumes are bouncing back, too. This trend will persist for the foreseeable future. As it does, the recovery in TSLA stock will continue.
As of this writing, Luke Lango was long TSLA.
