Tesla Troubles Again? No – Skeptics Are Wrong As Usual
(This post was written: April 13th, 2017 and updated: August 1st, 2019.)
Tesla troubles again? This article was written 2 years ago and nothing has changed. Tesla skeptics are still predicting the imminent doom of Tesla. Here’s a 12 minute compilations of analysts predicting the end of Tesla.
I’ve spent thousands of hours over these last 10 years studying innovation. Specifically, why some innovations are accepted and others aren’t.
If you look throughout history, you’ll find that the loudest voices in the media — the ones that people listen to the most — were too skeptical of the innovations that were going to be incredibly successful.
It was the case with Amazon, where these folks believed that incumbent bookstore companies such as Borders and Barnes & Noble would catch up and wipe out Amazon. Wrong. You would’ve missed out on phenomenal gains — Amazon stock is up 46,332% since its initial public offering (IPO) in May 1997 as of 2017.
It was the case with Netflix, where these people told you that Blockbuster or cable companies such as Comcast or content companies such as CBS would wipe out Netflix. Wrong again. Netflix stock is up 12,704% since its IPO in May 2002 as of 2017.
It was the case with Google, where most people believed that Web searching was going to be dominated by early Internet companies such as Yahoo. Google stock is up 1,637% since its IPO in August 2004 as of 2017.
Wrong. Wrong. Wrong.
Each time, the stock market was right in understanding that these companies and the technologies they represented were about to soar … and that the voices in the financial media were wrong.
And there’s one company that you’re hearing about today in the financial media that I believe the skeptics are going to be wrong about as well.
Haters Gonna Hate
That company is Tesla Inc. (Nasdaq: TSLA).
By every standard measure, Tesla’s skeptics are right. Tesla does look overvalued on the basis of its current sales. The same goes for measures of earnings or profitability.
And if you look at Tesla in this way, and you compare it to its competitors such as General Motors or Ford, it looks overvalued. That does not spell Tesla troubles.
However, you should know that these criticisms were true of Amazon in the late 1990s, Google in the early 2000s and Netflix in the mid-2000s.
All of these companies had market capitalizations that far exceeded their more established competitors. You should also know that none of these companies were profitable during the period when they grew the fastest.
And right now, Tesla is about to launch the biggest product in its history: the Model 3 sedan.
On the Cutting Edge
As I’ve said before, I believe that Model 3 is going to completely turn the auto industry upside down. It has already won server accolades since it’s release and this year it won the prestigious 2019 car of the year award, beating out competitors that have dominated the auto industry for over 70 years.
I believe that for three reasons. To start, Model 3 is going to be the first practical, affordable and highly desirable electric self-driving car.
By practical, I mean that Model 3’s range of at least 215 miles per charge is going to be something that fits many people’s comfort zones. The U.S. Department of Transportation’s National Household Travel Survey research showed that 95% of single-trip journeys by car were less than 30 miles. Trips of over 70 miles represented only 1% of the survey.
Model 3 is affordable at $35,000, which is the estimated average price of a car in 2018, according to Kelly Blue Book, a leading information source on cars and trucks.
Finally, the launch of Model 3 has made Tesla into a mainstream, global and highly desirable brand … like Apple, Google and Coca-Cola. Tesla is the only new car company in the modern era to break into the top 100 brands, as measured by Interbrand. That’s according to Daniel Binns, a managing director of Interbrand and an automotive-sector expert. And the reason for this, according to Binns, is “fundamentally a result of its drive down into the marketplace through Model 3. The market has responded to that car. The value of the enterprise is a reflection of people’s belief in how Model 3 will transform the nature of Tesla’s business and return profits.”
I believe that Binns is right. I believe that the launch of Model 3 is a transformative moment for Tesla … and for the auto industry in general… far from a sign of Tesla troubles.
One Last Thing…
The launch of Model 3 reminds me of the time right before Apple launched the iPhone. Many people were skeptical that a $600 phone could be successful. It was, and it made Apple into a stock market superstar. If you had bought Apple stock on the day of the iPhone launch and held on to it, you’d be up nearly 800% today.
Now, you can’t just go and buy Tesla stock because of what I’ve told you. That’s because controversial stocks such as Tesla are incredibly volatile as people’s opinions swing around. And it takes time for innovative companies such as Tesla to show the stock market that their businesses can generate long-term returns. Again, not a sign of Tesla troubles.
I’ll be looking to see when Tesla stock is a good deal so I can tell readers of Profits Unlimited when they should get in. However, you can still get in on the general trend toward electric and self-driving cars by owning the VanEck Vectors Semiconductor ETF (NYSE Arca: SMH). This is the exchange-traded fund I’ve been telling you to buy since June 2016, and it’s up 36.5% since then.
Editor, Profits Unlimited
I’ve been investing for more than 25 years. I started my career on Wall Street in 1991 as an assistant portfolio manager at Bankers Trust. I quickly advanced to prominent positions at Deutsche Bank and ING, managing multimillion-dollar accounts. In 2006, the owners of a $6 billion firm named Kinetics Asset Management recruited me to manage their hedge fund.