Tesla (NASDAQ:TSLA) stock has won.
While the shares were due to open at “just” $640 each March 11, down 3%, the market capitalization of about $117 billion is still bigger than that of General Motors (NYSE:GM), Ford Motor (NYSE:F) and Fiat Chrysler (NYSE:FCAU) combined.
The stock’s parabolic move, from roughly $200 in September to over $900 in February, has been hit by the coronavirus from China and falling gas prices. But it remains intact. The Tesla Model 3 has quickly become Europe’s third top-selling car, trailing only the Volkswagen (OTCMKTS:VLKAY) Golf and Renault (OTCMKTS:RNLSY) Clio.
Investors have decided that the switch is sustainable because Tesla is years ahead of rivals in battery production. TSLA stock is selling for nearly 5 times last year’s revenue while GM is selling for barely one-fifth of its.
Are these new investors crazy?
The Software Gap
A recent Harvard Business Review study of Tesla says it’s less about batteries than software. Lou Shipley, now an MIT lecturer but formerly a software entrepreneur, wrote that Tesla “develops cars as it would a software product,” and updates it as software is updated. Maintenance costs, a key auto profit driver, are thus minimal, and total cost of ownership low.
Tesla also put customers in charge of the purchase process, eliminating dealers and their mark-ups, Shipley writes. Its batteries make for a simpler car, and it attached itself to the “green” movement like no other company.
This has let Tesla run a blitzkrieg against the rest of the industry. A new Shanghai factory went up in a few months and it has seized one-third of China’s electric car market. It’s clearing land for a factory in Germany, which it plans to turn into a tourist attraction. Skeptics laughed at its bulky Cybertruck when it was announced last year. Now Tesla is looking for land near Nashville, Tennessee to make it.
Tesla Still Has Problems
It continues to suffer from high management turnover. Auto dealers continue to fight the company at every turn, and Tesla has had to turn to customers for help. Founder and CEO Elon Musk can still be an arrogant schlub, calling the coronavirus panic “dumb.”
Tesla is no longer a small car company. It will deliver well over 1 million cars this year. That makes it susceptible to market gravity, as China is proving. The coronavirus may be dumb, but that doesn’t mean Tesla can grow in the face of it.
There remain analysts who don’t think Tesla’s success is sustainable. Hedge fund managers like Greenlight Capital’s David Einhorn still detest Musk. Tesla remains one of the most-shorted stocks on the market.
But some of the more famous TV critics are coming around. Some even bought into the latest run-up.
The Bottom Line on TSLA Stock
Elon Musk has succeeded at scaling production. Tesla’s early failures had me highly skeptical of the stock. I called it a bubble in 2017, not tethered to market fundamentals.
Musk has proven me wrong. I said it needed to start trading like a car stock but it continues to trade like Apple (NASDAQ:AAPL).
I compared Tesla to dot-com bubble plays for years. But one of those dot-com bubble plays was a company called Amazon (NASDAQ:AMZN). It sold at a high of $295 per share during the bubble and it didn’t hit those heights again for a decade. It opens for trade March 11 at nearly $1,900 per share, and I’ve made money on it.
Like so many other people I was wrong on Tesla. Unlike some of them, I’m very happy saying so.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and AMZN.
