I’ve heard plenty of market commentators call Tesla (NASDAQ:TSLA) a “cult stock,” but I like the phrase “battleground stock” much better. There’s a war being waged between the bulls and the bears, and the company’s recent fourth-quarter earnings announcement looks like a decisive win for Tesla aficionados.
The Tesla stock price is certainly quite different now. What once was a battle to hold $250 is now a struggle over the $330 area. Granted, new TSLA stock buyers would be getting in at a higher price, but you could make an argument that the narrative has changed for the company. And this time it’s based on profits, not bravado.
TSLA Stock Bears Show Their Teeth
The narrative today surrounding Tesla stock is quite different than it was earlier this year. You may recall how bleak the outlook was back in January, when the TSLA stock price lost 13% in a single trading session. That drop came as CEO Elon Musk announced a 7% reduction in the company’s workforce.
At the time, Tesla pessimists were speculating that the cost-cutting measure was due to a decrease in demand. Adding grist to their mill, Musk also predicted that Tesla’s fourth-quarter 2018 GAAP profits would be less than in the prior quarter.
Multiple production delays for the Model 3 vehicles defined 2018, so Tesla’s critics were rife with schadenfreude at what appeared to be another blow to Musk’s admittedly sizable ego. I even recall seeing people on message boards saying that 2019 would be the year when Tesla would go bankrupt.
Tesla’s Transformative Impact
Clearly, neither 2019 nor 2020 will be the year of Tesla’s Chapter 11 filing. If anything, I see the coming months and years as pivotal in the evolution of the electric vehicle market. Indeed, I tend to concur with Stony Brook University’s Yiyi Zhou and Cornell University’s Shanjun Li, who expounded upon EV technology’s potential to transform transportation worldwide.
“Electric vehicles as a new technology hold the potential to fundamentally change the transportation sector. The diffusion of EVs coupled with cleaner electricity generation from renewable energy sources can provide a promising pathway to dramatically reduce air pollution from on-road vehicles and strengthen energy security.”
Tesla has embodied the spirit of progress but its CEO has been a controversial figure. As a result, Musk’s critics were spitefully joyful when the company posted a loss of over $1 billion during the first half of 2019.
Those same critics were probably hoping for another loss in the third quarter of this year, but they were disappointed to find out that Tesla actually had a $143 million GAAP net profit. Upon learning of the surprise quarterly profit on Oct. 23, after-hours traders pushed the Tesla stock price up 20%.
Thus, Tesla is transforming the electric vehicle industry once again. Everybody’s bullish now. It’s only a question of whether investors should buy TSLA stock at the new, higher price point. Musk, as we might expect, is ultra-confident with expectations that the coming quarters will also show positive GAAP net profits.
My Takeaway on Tesla Stock
Just because Elon Musk is beaming with confidence about Tesla’s future prospects, doesn’t mean that the TSLA stock price will go up. After all, braggadocio is nothing new for Musk.
More important than Musk’s attitude right now is the financial health of the company. And it does appear that Tesla is profitable and on track to post profits in the coming quarters. I, for one, am willing to forgive Tesla’s past losses and recommend a position in TSLA stock today. Whether I’m ready to forgive Elon Musk’s eccentric behavior is another matter entirely.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
