Dear Tesla Investors: Pass the Dutchie ‘Pon The Left-Hand Side
716%. That’s how much Tesla’s share price has increased since that fateful Joe Rogan podcast appearance.
“I mean, it’s legal, right?” Asks a curious looking Elon Musk. Inspecting the well-packed cigar-like joint, like he had never seen one before (pull the other one).
‘Totally legal’ responds a buoyant Joe Rogan.
Despite the share price dropping 9% on the release of that Joe Rogan podcast in 2018, they’ve gone on to cement a 700%+ gain. How much I wanted that figure to be 420% for the purposes of this write-up, but it wasn’t to be, sadly.
In my 10 years of stockbroking, I’ve never seen a company divide opinion so aggressively before. And it’s easy to understand why.
To set the scene, they haven’t reported a single annual profit since inception in 2003, currently hold a Standard & Poor’s BB- ‘junk’ credit rating (the same as Greece in case you were wondering) and their Chief and Commander can be found swanning around with a doobie on the go.
Not only that, but the frenzied buying of Tesla stock means it garners a valuation greater than *takes deep breath* Ford, General Motors, Mercedes, VW and Fiat-Chrystler… COMBINED! Hell, I can even chuck in former king of the hill, Toyota, and it would only just eclipse Tesla’s market cap.
To put this disparity into some perspective, Tesla sold 367,000 cars in 2019. VW on the other hand, a cool 11 million.
Having been a value-driven stock picker myself for the last decade, I’ve tutted and scoffed at Tesla’s meteoric rise and obscene valuation month after month. But there’s only so much tutting I can do until I just have to put my hands up and admit defeat. The share price just keeps going up and, clearly, I must be the stupid one in the room.
So, if Tesla are only selling 1/30th of VW’s volume, why are they worth nearly 5 times as much?
Vision and future potential are the short answers. Tesla aren’t re-inventing the wheel, but they’re making a damn good stab at it.
The world’s first ever fully self-driving car is no longer a pipe-dream, but rather a soon to be reality.
Their battery division has made incredible strides in what we previously thought possible. The often-overlooked solar division which billionaire investor, Ron Barron, says is now worth $40-50bn.
What next from these crazy cats, a flying car?
Well, yes.
He’s not joking either.
“Will use SpaceX cold gas thruster system with ultra high pressure air in a composite over-wrapped pressure vessel in place of the 2 rear seats.”
Just when the likes of Ford are creating their electric Mustang, Elon Musk is already wanting to attach Back to the Future style thrusters to his cars.
And with this, you start to understand the lead Tesla has on the future of car developments. Or at least a glimpse into Elon’s vision.
But this vision is turning into profitable revenue, and quickly! Just at the time of writing, Tesla have released their Q3 2020 earnings results. Tesla naysayers, look away now.
$8.7bn in revenue vs an estimated $8.36bn
$0.76 Earnings per share vs an estimated $0.57
139,000 car delivers. 44% increase year on year (what pandemic?)
To rub salt in the wound of the Tesla bears, Elon Musk has announced he’s dropping the price of the Model-S to $69,420. Subtle.
These latest set of results book in 5 consecutive quarters of profitability and puts Tesla on track to make their first ever annual profit.
Based on current car deliveries and the high multiple of forward earnings Tesla trade at (X141 times), it’s easy to understand the frustration that surrounds Tesla’s valuation. But if we take into account their growth trajectory and technological revolution, the other side of the argument starts to become more plausible.
I came into this thinking I too would need to be in a smoke-filled room with Joe Rogan before I’d consider buying shares in Tesla. Now, I’m not so sure.
And I can’t help but think, how much future potential can you price in before it becomes silly? In saying that however, who else is planning on producing flying cars?
I suspect the curious case of Tesla will continue to divide opinion and I can’t say I’m rushing out to put some in the portfolio just yet.
But maybe the wide-eyed bulletin board warriors talking Tesla up to the moon are on to something.
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