First blog of the decade: Stock Spotlight on Tesla

After one of U.S. stocks’ best years in recent memory in 2019, I thought I’d highlight one of the most fascinating and volatile stocks on the market, Tesla.

In the beginning of 2019, Tesla was riding high at over $350 per share thanks to a better-than-expected Q3 and Q4 of 2018, bolstered by Model 3 sales that exceeded estimations. In Q3 and Q4 of 2018, Tesla delivered 83,500 and 90,700 vehicles, compared to a combined 70,720 deliveries in the first two quarters of that year. However, in June 2019, Tesla sunk to its lowest price in over 3 years at under $177 per share due to major losses in Q1 and Q2 amounting to more than $1 billion, while also missing quarterly sales targets.

It’s safe to say Tesla has rebounded nicely since then. At the time of this writing and before the market reopens on Monday, January 13, 2020, Tesla is sitting at $478.15, about $20 less than its all-time high recorded on January 8. The 3 main reasons for its meteoric rise: an unexpected profit in Q3 of 2019, the opening of Tesla’s Shanghai gigafactory (more on that later), and surpassing its 2019 sales target of 360,000 vehicles by 7,500 units.

So it’s clear that Tesla turned itself around, but what does this mean for its future?

Let’s start with Tesla’s international expansion. McKinsey & Company, a global consulting firm, developed metrics to analyze the EV market in 15 countries. According to McKinsey, Norway is by far the most attractive EV market in the world in terms of incentives offered (subsidies, existing infrastructure such as charging stations, and the range of EVs available). Why does this matter? In 2019, EV sales made up for 42.4% of total car sales in Norway, which is a global record for EV market share in a country. And the best-selling car in Norway? None other than the Tesla Model 3, which accounted for 11% market share of Norway’s entire car market. So Tesla’s performing well in Norway, but what about the rest of the world?

It’s getting there. Currently, Tesla has 4 total factories, 3 of which it calls “gigafactories,” basically a way of saying “really really big factory” in one word. According to Tesla’s website, its Fremont, CA factory (not deemed a gigafactory) produces car parts for Model 3s, Ss, and Xs. Tesla’s Gigafactory in Nevada makes battery packs and electric motors for Model 3s, along with its energy storage products, the Powerwall and Powerpack. Gigafactory 2, in Buffalo, NY, makes solar panels, Tesla’s Solar Roof, and Powerwalls and Powerpacks. You might be wondering why this matters. I’ll get there in a minute.

While McKinsey deemed Norway the most attractive EV market in terms of incentives, it concluded that China is far and away the world’s largest EV market. As a result, Elon Musk decided Tesla’s first factory outside the U.S. would be Gigafactory 3, located roughly 90 minutes from Shanghai. While Tesla delivered 30,000 Model 3s in China in 2019, all of those vehicles were imported from the U.S. By assembling vehicles in China (Gigafactory 3 will produce Model 3s (3,000 per week!) and Tesla’s new Model Y crossover), Tesla can avoid operating at as much as a 60% cost disadvantage to other vehicles. It was also vital for Tesla to more effectively sell vehicles in China because some believe that its most threatening EV competitors are Chinese companies like Byton and BAIC. What’s more, Musk announced in November 2019 that Tesla would be building Gigafactory 4 outside of Berlin, Germany, which will build Model Ys, 3s, batteries, and powertrains. With the Shanghai factory reaching completion and beginning general production in just 357 days, it’s feasible to think that Gigafactory 4 could be assembling cars by the end of 2020 or early 2021. By building cars in Europe, Teslas will be more accessible there due to lowered prices from avoiding shipping costs and import taxes.

Then there’s the Cybertruck. Possibly the weirdest looking vehicle you’ve ever seen, Tesla is making quite a splash with its beast of a truck that is estimated to have over 500 miles of range, 14,000 pounds of towing capacity, and go from 0-60 mph in an unreal 2.9 seconds (in the most expensive version). For reference, the Performance (most expensive) version of the Model S goes from 0-60 in 2.4 seconds.

You might be wondering, why make such a funky vehicle? Musk’s goal is to do exactly what I said before: make a splash. My bet is that he is less worried about how many Cybertrucks Tesla sells (although it’ll sell quite a few: Tesla amassed 250,000 preorders for the Cybertruck in just 3 days after its announcement) because he believes the Model Y will outsell all other Tesla models combined. Even so, the Cybertruck's specs best those of the electric truck made by much-hyped adventure-EV startup Rivian, and its appearance created a whole lot of publicity. And all publicity is good publicity.

Okay, that was a lot of information. So back to the original question: what does this mean for Tesla’s stock in the future?

While the EV market is becoming more competitive with legacy automakers like Ford, GM, Audi, and Volkswagen coming out with all-electric models, along with Rivian, Tesla has the upper hand on what matters most in EVs: batteries. According to Financial Times, Tesla has, by far, the cheapest battery in terms of dollars per kilowatt hour. In June 2019, Musk also said that Tesla’s second-generation Roadster would have a range of 620 miles, which is far more than any EV and more still than any fossil fuel-powered vehicle.

Remember those Powerwalls and Powerpacks I mentioned earlier? Those are batteries too. Founded in 2003, Tesla has been perfecting its batteries for over 17 years, resulting in a learning curve that has enabled it to develop batteries that last longer and are cheaper than its competitors'. Any car-maker can build a luxury EV, but no one can compete with Tesla’s batteries. And I haven’t even mentioned Tesla’s 1,804 Supercharger Stations with 15,911 Superchargers in 4 continents, further cementing its competitive advantage in the form of its batteries.

Short-term, I’m out on Tesla. In the near future, its stock price will continue to drop. It’s already on its way down from the all-time high recorded 5 days ago, and there’s nothing we can expect to happen soon that would push the price higher again. So if you own it, sell now. But long-term, I’m all-in. Why?

Tesla isn’t just an automaker, and it’s not just a tech company. At its core, Tesla is an energy company, and it stores this energy in batteries, of which it has become excellent at making and improving. Soon, Tesla's energy will be everywhere. And with Elon Musk running the show, anything is possible. I believe in Tesla, and you should too.