It should go without saying that when it comes to Tesla (NASDAQ:TSLA), there’s no need to panic. Yes, Tesla stock has pulled back 19% from all-time highs just above $500. But the stock still has nearly quintupled year-to-date, soaring a sizzling 740% over the past twelve months.
It’s not just the performance of late that should remind investors not to worry. It’s also the fact that we’ve been here before.
Tesla stock has seen big drawdowns in its history. Back in March, at the height of the market panic surrounding the novel coronavirus pandemic, TSLA went from over $900 (unadjusted for its recent 5-for-1 stock split) to $360 in four weeks. (For what it’s worth, I argued that investors should buy that dip, too.)
In the first five months of 2019, Tesla stock lost over 40% of its value. It saw a 30% pullback the year before and a 20%-plus fall in the middle of 2017.
Heck, Tesla stock lost one-third of its value in five trading sessions starting on July 31 of this year. Investors who bought that dip are up more than 20%, even with the weakness of the last few sessions.
This has been a volatile stock. But that volatility, from a long-term perspective, hasn’t been a problem. Rather, Tesla stock has provided a series of buying opportunities.
This most recent pullback is more of the same. TSLA stock is going to bounce around, but the long-term trend should remain nicely bullish.
Short-Term Problems
It’s not just history that suggests this pullback will reverse. It’s also the fact that there simply isn’t a significant reason for the pullback. Rather, TSLA seems to have been pulled down by a series of short-term and relatively immaterial factors.
For instance, investors seemed almost certain that Tesla stock was going to join the S&P 500 index. A fourth consecutive quarter of profitability made the stock eligible for the index. Inclusion would lead to buying from S&P 500 index funds that combined have trillions of dollars in assets. S&P, however, chose not to include TSLA stock — at least, not yet.
But from a long-term standpoint, does that really matter? Tesla is going to join the index at some point. By market capitalization, it’s the tenth-most valuable American company. The difference to Tesla stock between inclusion in August and inclusion even in, say, February 2021 is negligible.
We’ve also had some valuation concerns in the market more broadly. That’s not a surprise. Tech stocks have soared year-to-date, let alone off March lows, despite the impacts of the pandemic.
With such strength in the market — and little earnings news in recent weeks — a cooling-off period seems almost logical. But, this, too, has basically zero impact on the long-term case for TSLA.
The Case for Tesla Stock
Finally, some investors (and analysts) seem to believe that last week’s Battery Day was a disappointment.
As I wrote last week, I disagree with that take. Maybe some investors were looking for Tesla to launch a battery with a range of 1 million miles. But what the company did announce looks bullish from here.
Most notably, Tesla believes it can sell an electric vehicle for just $25,000 within three years. Admittedly, Tesla and chief executive officer Elon Musk have been aggressive with past targets. But — once again — it doesn’t matter that much whether the $25,000 car arrives in 2023 or 2025.
The point is that Tesla’s efforts in both manufacturing and batteries are moving electric vehicles toward exponential growth. The recent announcement by the state of California that it would ban the sale of gas-powered cars by 2035 is another catalyst.
As I’ve written multiple times, electric vehicles are a megatrend. The environmental benefits and maintenance savings are not up for debate.
But one key issue has been the price. Tesla is moving toward removing that stumbling block. And once it does, there’s really nothing left in the company’s way.
After all, there are competitors, but Tesla is far ahead and not letting those rivals catch up. There are still markets that Tesla can and will succeed in beyond simply selling cars — some of which Musk and his executives likely haven’t even thought up yet.
What Tesla said last week is that it will be able to sell —and profitably sell — electric vehicles for the masses. Without exaggeration, it’s difficult to think of a better long-term bull case anywhere in the market.
Eventually, investors will remember that fact. The short-term noise will fade, and Tesla stock will resume its long-term uptrend.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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