As of this writing, the 2020 round-trip in Tesla (NASDAQ:TSLA) stock is complete. At a couple of points this year, TSLA stock traded over $900. At that level, shares had more than doubled year-to-date.
Incredibly, after a shockingly steep pullback Tesla stock is now almost flat for 2020. But that trading highlights why investors need to keep their cool in a market that now is the most volatile ever.
After all, take the long view backwards and the news is much less grim. Shares still have rallied 55% over the past year. They’ve more than doubled over the last five years, and risen a sparkling 1,600% in a decade.
Meanwhile, looking forward — as investors should do in any market, and especially this one — nothing really has changed long term. Tesla’s transformation of the automotive industry will continue. Its growth opportunities outside of the auto industry remain intact.
And, in fact, there’s even been some good news for Tesla in recent days, even if that news isn’t exactly game-changing. As with the market as a whole, this selloff has gone too far.
The Short-Term Risks
Tesla, like almost every other U.S. company, is going to take a short-term hit over the coronavirus from China. Consumers are not out buying new cars right now (though work continues at the company’s factory in Fremont, California). Solar installations are going to slow at a pivotal selling time.
But there also will be significant pent-up demand come this summer, as the U.S. and the world return to normalcy. For the most part, revenue will be delayed, not lost. That will have a modestly negative impact on earnings, but the figure might at most be a couple of billion dollars.
Even that figure seems potentially overstated. But against Tesla’s current market capitalization near $80 billion, it’s hardly enough to have a material impact on TSLA stock.
Meanwhile, Tesla managed to strengthen its balance sheet ahead of the crisis. While I long thought TSLA bears’ constant predictions of bankruptcy were overwrought, Tesla has on occasion had cash challenges.
At the end of last year’s first quarter, for instance, Tesla had just $2.3 billion in cash on the balance sheet. Given that annual operating expenses alone are well over $4 billion, the relatively low cash balance could have created short-term fears about the company’s ability to manage extended downtime.
That’s simply not an issue anymore. Tesla finished 2019 with $6.5 billion in cash. It raised another $2 billion in February. As one analyst presciently put it at the time, “It takes any doomsday scenario around [a] cash crunch … off the table.”
As with so many stocks in the market — Lululemon Athletica (NASDAQ:LULU) is another example I’ve highlighted — the sharp decline in Tesla stock simply can’t be attributed to short-term fears.
There’s Some Modest Good News
Even if it could, there’s actually been a bit of good news from a short-term standpoint.
First, Tesla has delivered its first Model Y. Even TSLA bulls must admit that Tesla and CEO Elon Musk have had a habit of over-promising in the past. But the Y’s first delivery actually is ahead of schedule: The company had planned for a release this summer.
That mid-size sport-utility vehicle expands Tesla’s lineup, giving it an attractive option between the Model 3 and S sedans and the Model X full-size SUV. As sales of the Y ramp, the company can turn its attention to the Cybertruck and other new products. Investors likely will do the same, adding to the optimism behind TSLA stock.
Meanwhile, Tesla is getting back to normal in China. Its factories have re-opened. And in February, the company reportedly accounted for nearly one-third of all electric vehicles sold in that country.
That’s a bigger accomplishment than it might sound like. China is not the U.S., where competitors like Ford (NYSE:F) and General Motors (NYSE:GM) are lagging. There are nearly 500 electric vehicle manufacturers in the market. Among them is local powerhouse Nio (NYSE:NIO), whose own opportunity at the end of the market is enormous.
The fact that Tesla has gained 30% share in a fragmented market only months after entering that market is astounding. And it shows just how impressive the company’s products are — and how large its growth opportunity is.
Stay the Course with TSLA Stock
And so for TSLA, as with many other quality stocks in the market, the declines look like an opportunity. Investors get a second chance to buy the stock at January levels — before the company delivered a blowout fourth-quarter report that catalyzed last month’s parabolic run.
As I’ve written before, the opportunity in autonomous and electric vehicles is enormous. And Tesla is leading the way.
That’s the case on which investors need to focus right now. Because, once this panic ends, the rest of the market will start doing the same. And Tesla stock will start climbing again.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
