Tesla (NASDAQ: TSLA) is up 37% in the past month, mostly on the strength of much better-than-expected third-quarter earnings. Tesla stock looks strong heading into 2020.
After the big earnings move, Dennis Dick, a friend of mine and co-host of Benzinga’s PreMarket Prep morning show, asked an interesting and simple question on Twitter.
“Why does everybody hate this company?” he asked about Tesla.
I’ve been pondering that question ever since, especially given I have been a vocal critic of TSLA stock as an investment for years. At the end of the day, I think there are several reasons why Tesla is such a battleground stock, and most of them have nothing to do with dollars and cents.
TSLA Stock Is a Symbol of Progress
The Donald Trump era in the U.S. has ushered in a heightened climate of political conflict, which has been magnified online by social media. The U.S. appears to be extremely politically polarized at the moment, and online political debates are often far from civil.
At its core, Trump’s campaign slogan of “Make America Great Again” is an appeal to the nostalgia of the past. The 2020 Democratic field seems to be arguing that social progress will fix all your problems in the future.
Perhaps no investment is more emblematic of the possibilities of the future than TSLA stock. Many Tesla investors can’t seem to understand why anyone would want to buy a gasoline-powered Ford (NYSE: F) or General Motors (NYSE: GM) car ever again when they could get a Tesla, the car of the future.
If you can’t make peace with how Trump was elected, it may be difficult to understand why a large portion of America doesn’t want things to change. They don’t want social progress. They don’t want fancy new computer cars. These people are proud of their traditions, and they want the same Ford F-150s their fathers and grandfathers had.
I grew up in a small town in Alabama with fewer than 2,000 people. Those towns are easy to write off because they are so small. But the space between New York and Los Angeles is filled with towns like these. Many of the residents in these red states don’t want electric cars, and they don’t like to be told that liking things the way they makes them bad people.
Elon Musk Is Obnoxious
I personally have a tremendous amount of respect for Elon Musk’s professional accomplishments. Despite the fact that I am a huge skeptic of TSLA stock as an investment, Tesla the company has been a tremendous success. PayPal (NASDAQ: PYPL) was a tremendous success, and SpaceX has been a tremendous success.
But regardless of what you think of Musk’s professional accomplishments, he can be extremely obnoxious. He is constantly taunting short sellers by gloating about Tesla’s accomplishments.
Musk name-calls government regulatory bodies that are in place to protect investors. He has bickered with reporters and refused to answer analyst fair questions when these people dare ask for clarification about Tesla’s business or Musk’s controversial claims. Musk paid a $20 million settlement for fraud after making deceptive tweets about a potential Tesla buyout.
Many TSLA stock supporters and Musk fans would never admit it, but this is all obnoxious behavior. If you can’t see it, imagine the above set of behaviors coming from the CEO of Exxon Mobil (NYSE: XOM) and see how they would come off.
In fact, despite differences in ideology, I believe Musk and Trump have very similar personalities. Musk’s name-calling and low blows about TSLA stock short-seller David Einhorn’s performance in a public letter last week are extremely reminiscent of Trump’s nicknames and low blows about ratings or subscribers when he criticizes the media or other naysayers. By the way, the media is also a favorite target of Musk, who has also accused reporters of writing fake news about Tesla.
Idealists Versus Pragmatists
Finally, I believe the TSLA stock debate comes down to a battle between idealists and pragmatists. I no longer live in that small town in Alabama. I don’t care much for politics outside of their impact on the market, but what I do see is the fact that TSLA stock is trading at a forward earnings multiple of 63. It has a larger market cap than Ford and GM. Tesla has yet to string together more than two consecutive profitable quarters in the Model 3 era.
Earnings and revenue growth were negative in the third quarter. Tesla has yet to get anywhere close to its targeted 25% auto gross margins.
Idealists see Tesla and TSLA stock in chapter one of a story that will end with Musk making the world a better place and his investors living happily ever after. Pragmatists, such as myself, see TSLA stock as an overpriced auto investment in a weak global auto market.
Unfortunately, there is probably no way to convince a pragmatist to take a leap of faith and bet on an underdog story. At the same time, it’s difficult to convince an idealist to forget the future and look at a spreadsheet of financial numbers.
The Bottom Line on Tesla Stock
Lots of people seem to hate or fear what Tesla represents. The only thing I hate is the Tesla stock valuation.
The circumstances I described above make it extremely difficult to predict how TSLA stock will react to typical market catalysts, especially in the short-term.
I have and will continue to recommend people stay on the sidelines when it comes to Tesla. There are plenty of better-performing long-term investment opportunities out there that don’t come with all this philosophical and political baggage.
Some people love TSLA stock. Some people hate it. But emotions should have no place in your investing decisions.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.