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Tesla Crashes … Sort Of
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Watching tech stocks lately is about as interesting as it has ever been. That’s saying a lot, given the long standing excitement and market-leading dominance of the sector. In Tuesday’s Juice, we argued that tech will likely continue to lead the way as we return to a decidedly bullish stock market to end 2023 and start 2024: Maybe the strength we see in Apple (it’s up about 8% over the last month) indicates that investors do view it as a safe place to keep capital even amid slow growth, thanks to its profitability, cash position and small, but growing dividend. That’s our take on Apple (AAPL), but what about Tesla (TSLA)? Particularly amid a set of contradictory numbers.
Call it a crash. But it doesn’t really matter, because … Tesla’s stock is up roughly —
How can a company with plunging market share have such a killer stock? Probably because the market share number makes for a good headline, especially in a world where Elon Musk routinely plays the villain. However, with some context placed around the headline, it’s clear to see why TSLA stock continues to crush it and the company is — for all intents and purposes — doing as well as ever. In some ways, Tesla is a modern day flight to (relative) “safety” like Apple. Quantitatively —
Qualitatively — If it wasn’t for Tesla, we would not be seeing electric vehicles take on broader appeal:
Tesla doesn’t need to be a market share story. Sort of like Apple. Apple’s share of the U.S. smartphone market has fluctuated between 37% and 46% over the last five years. Depending on who you get your data from, it’s presently around 39%-40%. However, ask anybody the first brand that comes to mind when they think smartphone and we’ll bet you a side of mashed potatoes topped with gravy, it’s iPhone. Same goes for Tesla. There are Tesla EVs and all others. It’s this mindshare that allows everybody else’s — taken together — market share to grow. What Tesla needs — like Apple, really — is a new product. And that’s coming in the form of Tesla’s Cybertruck. Except it won’t happen overnight, as Musk noted on Tesla’s recent Q3 earnings call: But this difficulty going from a prototype to volume production is like 10,000% harder to get to volume production than to make the prototype in the first place. And then it is even harder than that to reach positive cash flow. That is why there have not been new car start-ups that have been successful for 100 years apart from Tesla. So, I just want to temper expectations for Cybertruck. It’s a great product, but financially, it will take, I don’t know, a year to 18 months before it is a significant positive cash flow contributor. I wish there was some way for that to be different, but that’s my best guess. So, really, the demand is off the charts. We have over 1 million people who have reserved the car. So, it’s not a demand issue, but we have to make it, and we need to make it at a price that people can afford, insanely difficult things. In conclusion, we continue to focus on ramping production while maintaining positive cash flow, and we continue to target expect to have around 1.8 million vehicle deliveries as stated earlier this year. Tesla has entered territory where investors anticipate it will deliver. All it takes is one look around most big and medium size cities, such as Los Angeles, San Francisco, New York, Austin and Portland. Teslas are everywhere. Just like iPhones. It’s a classic case of not only invest in what you know, but put your faith in proven market pioneers who have delivered time and time again. The Bottom Line: There’s something refreshing about actually listening to a Tesla earnings call. Or even an Elon Musk interview. When you hear Musk speak in these situations, his clearheadedness stands distinct from some of his social media tangles and the general consensus much of the public has about the guy. While The Juice certainly takes exception with some of Musk’s antics, we also realize he’s often one step ahead of everybody else. For example, we think Musk has a vision for X (the artist formerly known as Twitter) that’s light years ahead of the easy digs critics are making at the fall of the social media platform. Simply put, don’t be surprised if X turns into a smashing success. But, this too, won’t happen overnight. So it’s double refreshing to hear Musk temper the Cybertruck expectations. In our view, this measured and realistic (even if overly cautious) approach helps calm investor nerves and keep them in the stock, making TSLA a core holding for long-term investors. |
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