Apparently, some investors will never be pleased. Despite gaining nearly 54% year-to-date, Tesla Inc (NASDAQ:TSLA) continues to attract heated debates. On one end of the table, we have CEO Elon Musk, a young, charismatic genius who will change the world. On the other end, innovations and standard business practices don’t always meet eye-to-eye, which at times threatens the TSLA stock price.
While I’ve generally held positive views on Tesla and its investment potential, recent developments have given me some pause. Most notably, technical pressures have prevented TSLA stock from building on its potential from earlier in the year.
Since the end of June, shares have lost 9% of value in the markets. Legitimate efforts at $400 have occurred, but have also been very short lived.
Even more concerning for buy-and-holders, the lack of performance in the second-half of this year may not be over yet. As explained by InvestorPlace contributor Will Healy, few companies can match Tesla’s drive for innovation. However, that innovation also comes at a steep cost.
Most of the time, TSLA shareholders were content on letting Musk “do his thing.” But even eccentric companies like Tesla still have to follow some basics.
As Healy further notes, Tesla has cash flow and valuation problems. Its bonds are also ranked as junk, “which makes issuing more of them a less appealing prospect.” But issue them they will.
To maintain their competitive edge, Tesla has to feed the R&D beast. Either that, or they can issue more shares. Of course, this dilution wouldn’t bode well for the stock price.
Give TSLA Stock Some Breathing Room
I completely get the argument that Tesla’s cash-flow situation stinks. To straight-laced investors, Elon Musk sometimes appears like a madman, concocting wild formulations after another. You might even say that Tesla’s business operations are occasionally reckless. While valid criticisms, I’m not convinced that people should give up entirely on TSLA stock.
Please don’t misunderstand – the fundamentals are important, which is why they’re called the “fundamentals.” And I certainly see how Musk can rub some folks the wrong way. But we also have to be fair and provide the broader context.
Tesla is a super-high growth technology firm. We give this sector some leeway simply because of their paradigm-altering potential.
It wasn’t too long ago that similar criticisms impacted Amazon.com, Inc. (NASDAQ:AMZN). CEO Jeff Bezos spent many years laying the foundation for an e-commerce powerhouse. Today, brick-and-mortar retailers face a critical inflection point, whereas Amazon is sitting very pretty and, more importantly, dictating terms.
Just like it was wrong to prematurely doubt AMZN, you shouldn’t repeat the same mistake with Tesla stock.
Tesla has as great of a chance to impact its industry the way Amazon did for retail. Consider that one of the criticisms against the rising TSLA stock price is its market capitalization relative to General Motors Company (NYSE:GM). Roughly speaking, they’re the same, yet General Motors sells significantly more vehicles than Tesla.
However, General Motors is an iconic brand possibly on its way out. Tesla is riding the opposite trend. Electric vehicles have experienced rapid sales growth in the lucrative U.S. auto market, and are projected to explode from here.
With Tesla having already made significant investments in EV infrastructure, the TSLA stock price will move higher over time.
TSLA Is About Quality Over Quantity
Naturally, traditional automakers will respond with their own EV portfolio, but their efforts will lack pizzazz. For example, Toyota Motor Corp (ADR)(NYSE:TM) has its Prius, Nissan Motor Co Ltd (ADR)(OTCMKTS:NSANY) countered with the Leaf, and Ford Motor Company (NYSE:F) entered the fray with the Focus Electric.
They’re all automotive abominations.
I’m sure that functionally, they work as advertised. But from the very beginning, Americans have associated cars with more than just transportation. We have an entire culture built around the automobile. In my opinion, Tesla is the only EV automaker that combines function with style. That’s another reason why I’m bullish on the Tesla stock price.
Believe me – not every Millennial fanboy wears super-tight jeans and buttons his flannel shirt to the very top. Many of them care what their ride looks like. Tesla today offers a wide variety of attractive EV options. That’s a big plus for TSLA stock that its competitors just can’t muster.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
