Tesla (NASDAQ:TSLA) announced fourth-quarter deliveries on Jan.3, and Tesla stock once again defied the critics.
Analysts were expecting 106,000 between the Model 3, Model X, and Model S. Tesla delivered 112,000, a company record. As a result, in the week since, Tesla stock has gained 16% and is closing in on $500.
For all of 2019, Tesla delivered 367,500 vehicles, 50% higher than a year earlier. Those are some impressive numbers for a manufacturer that’s been written off many times since Elon Musk first invested in the maker of electric vehicles in 2004.
Forget All the Arguments Against Buying Tesla Stock
First, the bears argued that Tesla would never make money. Then they made the case that Musk would fail to turn the Model 3 into an everyman’s car. Finally, the best argument they can muster is that incentives remain the difference between success and failure.
My InvestorPlace colleague, Josh Enomoto, recently wrote that even if incentives remain a part of Tesla’s selling proposition, consumers are going to continue to get buyer’s remorse. That’s because the company’s vehicles take way too long to repair compared to the typical combustion-engine vehicle.
Here’s the thing: Tesla, in my opinion, is not going to lose sales because it can’t compare to a combustion-engine powered vehicle. It’s going to lose sales because other electric-vehicle manufacturers come up with better vehicles.
My colleague, Wayne Duggan, points to Tesla’s laughable valuation as a reason you shouldn’t buy TSLA stock. Up 105% in the past three months through Jan. 8, Tesla is trading at 39 times cash flow. That compares to a price-to-cash flow of less than 3x for Ford (NYSE:F).
From a strict numbers point of view, Duggan is right.
It’s Not About Numbers
Watching the devastation that’s currently hitting a wide swath of Australia, it’s impossible not to think of the environment and what humankind is doing to the planet. And while it’s been proven that humans set a significant number of the wildfires, it’s also true that 2019 was the second-hottest year on record across the Globe; Australia included.
Climate change is real. It might not be the dagger that kills the planet (a war with Iran might do the trick) but it is one of the most critical causes upon which world leaders should focus their attention.
So, to say incentives are the only thing that’s keeping the Tesla dream alive is mere Poppycock.
What’s keeping Tesla alive is the fact combustion engines are on the way out. Electric may be surpassed by hydrogen or solar, but it’s not going to be surpassed by a demand resurgence for combustion-engine powered vehicles.
It’s just not going to happen. It’s too late. The horses have left the barn.
If you’re a Nio (NASDAQ:NIO) shareholder, this reality ought to give you comfort. Tesla’s faced several cash crunches in the past few years. Thankfully, there were enough investors with a vision beyond the latest quarter to provide Elon Musk with the capital necessary to continue building the world’s most innovative automotive technology company.
When Ark Investment Management CEO Catherine Wood said Tesla stock would go to $4,000 in February 2018, investors scoffed at the notion. Almost two years later, TSLA is halfway to $1,000, and one-eighth of the way to $4,000.
Wood sees beyond the numbers, incentives, and all the other negative commentary that’s been said about Tesla. In October, when Tesla’s stock was trading around $300, Wood appeared on CNBC’s Squawk on the Street, arguing that the shorts are “going to be forced to cover as time goes on.”
Two-hundred dollars later, it appears she was right on the money.
The Bottom Line on Tesla Stock
In late November, I said I liked Tesla’s chances of hitting $400 early in 2020. It reached this target in mid-December. I should have said it would hit $500 in early 2020. Eight dollars away from $500 as I write this, $600 could come by next summer, but let’s not get ahead of ourselves.
If you’re worried about buying Tesla stock at a top, consider why you’re buying in the first place. The only reason to own Tesla at this point is you believe in the electrification of transportation. Everything else is mere noise.
Long-term, I continue to like TSLA.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.