A Cynical look at Tesla
Updated: Jul 3
While the markets have taken a dive this week and we have been bombarded with stories of negativity and sluggish outlook, I have decided to focus on a more positive and forward-looking company to do a deep dive on. And so we will take a cynical look at Tesla (TSLA).
Tesla needs no introduction to anyone who has been looking at the stock market. In the last 6 months, its stock has seen meteoric growth from a price of $230 in September 2019 to $600 in March 2020, an amazing 160% increase in value. It also peaked at $917 last month.
While Tesla is primarily a car company, and that is the industry which analysts compares its stock to, its value proposition is actually technology. Tesla currently is or trying to be the leader in the electric vehicle as well as the autonomous driving industries. And this is why there is so much buzz around this company. It is trying to disrupt multiple industries simultaneously and it is showing signs of success in doing so.
Tesla in comparison to other Electric Vehicles
Teslas are the top selling EV vehicles in the world in 2019. With the launch of the Model 3, Tesla is finally able to compete with the mid-range priced vehicles. Additionally, Tesla has the largest network of chargers for its cars among all its competitors giving it an extra edge. One might even wonder with so many established companies such as Toyota, Ford, GM, how did Tesla manage to even get such a head start.
And if the EVs weren’t enough Tesla is the only company in the market that has a somewhat working autonomous driving ability with its Autopilot feature.
So why can’t other companies catch up with Tesla when it comes to autonomous driving? The reason is data. Tesla had equipped its earliest cars with sensors to capture driving data, even when theses cars did not have autonomous driving available in them. As such, Tesla has amassed a whopping 2 billion miles of driving data from all its cars that are currently on the road. In comparison, its rival companies have driving data that is in the region of millions of miles. It will be virtually impossible for Tesla’s competitors to catch up on collecting enough data as Tesla will always be ahead. In the field of AI, real world data is the single most important asset when training the AI to drive on real roads and hence, Tesla is far ahead in this area.
Why am I buying up more Tesla now?
Though I am not sure about the long term (2 years or more), I am quite confident that Tesla will be a great buy for 2020. There are 2 main reasons why.
The first is the upcoming Tesla battery day event. This is an event that Tesla is hosting for its shareholders rumoured to be sometime in April 2020 where the company will provide updates on its battery supply, which is the single most important component for its EVs. There might also be updates on its acquisition of Maxwell Technologies and how that strategically fits into Teslas vision. If Tesla is able to show that they have secured a significant part of its supply chain during this event, it might spell further doom for its competitors who will be left fighting for the remaining battery resources in the market. This will surely generate more interest in Tesla and its cars.
Secondly, there have been rumours that Tesla is expected to be included in the S&P500 in 2020. While there is no evidence of this actually happening, Tesla has been slowly checking off all the required boxes to be included in the S&P500. The key metric left is to show 4 consecutive quarters of positive earnings. To achieve this, Tesla need their next 2 quarters to be profitable and the signs are looking promising. And the expectation to be included in the S&P500 is even stronger because Tesla is the most valuable American company that is not a member of this group. So why does inclusion in the S&P500 matter? Once this happens, all of the indexes that have to match the S&P500 will be forced to buy Tesla shares and this will cause a surge in demand. This is when I will be looking to sell out of my position in Tesla.
How is TSLA stock doing now?
In the past few days the price of TSLA has gone down to under $700 which presents a great buying opportunity. I am expecting it to drop further as oil prices remain low because conventional cars would be more attractive to the consumer in this market. Nonetheless, I will focus on buying more Tesla and will look to sell it off if it gets added to the S&P500.
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence