Tesla: The Enigma of Wall Street
Four days ago I discussed the incredible run Tesla has had recently.
At the time it was trading at US$650.57 per share. Gaining roughly 258% over an eight month period.
Well, overnight it peaked at $961.86 per share during intraday trading.
That is close to a 48% gain in just four days…
A stunning result for a stock that is now the second most valuable car company in the world. Only Toyota has them beat.
Now, granted Tesla did actually close a fair bit lower than its intraday high. It is currently sitting at US$887.06 per share, though after hours trading is trending higher.
Whichever way you look at it, this company has gone stratospheric.
Oh, and about that US$1.5 billion lost on shorting Tesla? Well you can add another US$5.7 billion to the tally now.
This fallout is part of the still ongoing battle between believers and doubters. An investing fight that has seen many winners and many more losers.
Right now though, the believers must be feeling pretty chuffed.
However, I’ve already covered this. So there is no need to go over it again.
Instead, the reason I want to look at Tesla again, is because it has become something of a curiosity. Or at least, this recent surge has piqued my interest. Mainly because it has nothing to do with their cars…
It’s a platform, not a product
Let me start by saying I’m not here to tell you whether Tesla is great or terrible. There is a case to be made for both arguments.
What I am here to talk about is what they do, and how far they’ve come.
See, there still seems to be a misconception when it comes to Tesla. Often people will only view them through the lens of an automotive company. Which they are, but not exclusively.
Yes, Tesla makes cars. But they’ve also built an entire platform around these cars. Things like the charging stations, the internal software, the gigafactories, and the batteries to name a few.
In fact, the reason for Tesla’s surge over the past two days is largely due to these batteries.
In partnership with Panasonic, Tesla’s battery business reported its first quarterly profit on Monday. A milestone that has been years in the making. I digress though.
The point is, almost everything Tesla does is long-term oriented.
Musk, for all his faults, has had a clear vision from day one.
He wasn’t content with making just a car. He planned to make a whole new system of driving. One that Tesla was integral to in every aspect.
To better convey what I mean by this, think about a phone. When you get a new phone it may be new and shiny, but it can also be quite barebones.
Sure, it can perform all the basic tasks you’d expect like calling, texting, taking pictures; you get the idea. But, then you need to buy a case. Maybe even a screen protector. Not to mention all the apps you know and love. Plus whatever other features you rely upon.
What you end up with is a phone that is a sum of many parts. Sure, the actual phone is the most important, but the other add-ons and features add crucial utility.
A car is somewhat similar in this regard.
Once you drive out of the dealership, you’re not done with your purchase. You’ve still got to buy petrol to keep it running, insurance to stay safe, and upgrade or replace parts as needed.
What sets Tesla apart is that they want to be a part of the entirety of this ecosystem. Providing any and all goods or services that drivers could want.
They built a platform rather than just the product. And it is what sets them apart from other automotive companies.
Brilliance or bubble?
I want to be clear, as it stands, Tesla has still yet to deliver on their promises. They may be profitable, but those profits simply cannot justify their current value.
What investors are therefore pricing in, is more growth. Whether Tesla can deliver on this growth is the ultimate question.
As just a car company? It would likely be impossible.
As an entire energy and transportation platform though? Well, time will tell.
Right now though, when you look at how far the stock has come, it helps to have context. As crazy as it is, Tesla itself is a bit of a crazy company. Their real ambitions are much bigger than many care to see.
Here is how one Wall Street regular, Gene Munster, described it back in 2017:
‘Tesla seems fine with investors and the public thinking they are an automaker. Musk knows that his ambitions to manufacture electric vehicles, develop autonomous driving software, double the world’s output of lithium-ion batteries, be the largest solar panel installer in the U.S., and modernize energy production, storage, and consumption, must be executed in steps, each building on the last.’
And that is the key, dear reader. Whether or not Musk’s ambitions will come to fruition or not.
God knows how high the stock might go if he does. It’ll certainly be exciting to watch though…
Editor, Money Morning
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