Investor Insights:
- Tesla’s stock price dropped 40% this year before doubling to a recent high of $360.
- CEO Elon Musk claims there will be 1 million Tesla robotaxis on the road next year.
- Some bullish Wall Street analysts have a $4,000 price target. Here’s what I think…
Update: Last week, I stayed up way past my 9 p.m. bedtime to watch Tesla CEO Elon Musk reveal the new Tesla pickup truck.
The Cybertruck looks like a Hummer and a DeLorean had a baby. The angles on the car resemble 1990s video games with bad graphics.
The Cybertruck’s body is “literally bulletproof,” as Musk proclaimed. It’s made from the same newly developed stainless steel alloy that’s used for SpaceX rockets.
An associate with a sledgehammer whacked the driver’s door to punctuate Musk’s point. But the test of the Cybertruck’s supposedly unbreakable windows didn’t go so well.
Musk’s associate lobbed a metal ball, which cracked the glass. Musk responded with a few obscenities and: “Well, there’s room for improvement.”
For a minute, I thought I was watching Saturday Night Live. But then I remembered it was only Thursday night.
As Musk continued outlining the (impressive) specs of the Cybertruck, his cheeks were an embarrassed shade of red.
The media focused on the broken glass, but they missed the point.
The Cybertruck is here. And its headlights are focused on the truck market, which made up 17% of all U.S. auto sales last year.
Additionally, Tesla has taken over 200,000 orders for the Cybertruck even though it won’t hit the roads for another two years.
And this all falls in line with something I said midyear about the company…
In fact, since Tesla is back in the news, let’s revisit that article I wrote in June about Tesla’s future.
In it, I explain the bull and the bear cases for Tesla … and what I think is your best bet.
Keep reading below to learn more.
Regards,
P.S. I also took a moment to update the numbers in the below article so you have the most up-to-date information.
Morgan Stanley’s Bear Case & Tesla Future Stock Price
Tesla’s a battleground stock.
Its stock price dropped 40% this year before doubling to a recent high of $360.
The bears think the company could implode into bankruptcy, while some bullish Wall Street analysts have a $4,000 price target.
Analysts at Morgan Stanley worry that demand for Tesla’s electric vehicles (EVs) has reached a plateau.
The main problem, in Morgan Stanley’s eyes, is that “Tesla may have oversaturated the retail market for [electric sedans] outside of China.”
Additionally, the analysts are concerned that Tesla’s kicking off a “hardcore cost-cutting plan,” in the words of Tesla CEO Elon Musk.
Morgan Stanley fears Tesla has grown too big relative to near-term demand. There are signs that things are awry inside the company:
- Key executives are leaving.
- Dealerships are discounting prices.
- Extraordinary cost-cutting efforts.
These aren’t typical behaviors of a healthy company.
After a recent equity and convertible debt raise, Tesla will likely end the year with $14.6 billion in debt, compared to a current market cap of $60 billion.
The share price holds the key to Tesla’s future.
A lower share price could create a downward spiral, as employee morale sinks and executives leave for greener pastures. And both customers and suppliers would worry whether or not the company will be around in the future.
Would you purchase a $75,000 Model S if you thought there was a chance the car company was going the way of the DeLorean?
For the bears, that’s the most important question.
The Bullish Case for the Price of Tesla Stock
The best thing the bulls have going for them is that the bears are all over this stock.
Tesla short interest has spiked in the past year, as the bears are betting on Armageddon.
There are 31.78 million shares sold short, accounting for 23.79% of the float. That’s down from 43.63 million shares sold short for 32.65% of the float just a few months ago.
These high short numbers mean any good news will likely cause a sharp move higher as shorts rush for the exits at the same time.
The bull thesis for Tesla is that the price of battery pack systems is on a declining cost curve. That will eventually make them much cheaper than internal combustion engines, paving the way for a world of EVs.
This thesis assumes that the price of EVs follows a little-known function called Wright’s law. It was named for Theodore Wright (no relation to Wilbur and Orville Wright) after he discovered a consistent cost decline in airplane manufacturing for every doubling of production in the 1920s.
Wright found that the cost to produce the 4,000th airplane was 15% cheaper than the 2,000th plane, which was 15% less than the 1,000th plane.
In 2018, global EV sales totaled 1.45 million. Tesla’s market share was 17%.
Based on Wright’s law, and accounting for increased demand at lower prices, global EV sales could be 20 times higher in the next four years.
If Tesla holds its current market share and EV production takes off, it’ll sell 3 million cars in 2023.
Given gross margins of 25% and an average auto industry multiple of eight times sales, this would result in a stock valued between $500 and $1,000.
However, some analysts are even more bullish.
Musk’s Vision for Tesla
Ark Investment Research has a $4,000 price target on the stock. And it claims it can go even higher if the company’s able to launch a fully autonomous taxi network, charging passengers by the mile and taking a platform fee.
Musk claims this is going to happen. At Tesla’s annual shareholder meeting on Tuesday, he reiterated his claim that there would be 1 million robotaxis on the road as of next year.
He’s not referring to new vehicles. Musk is saying that software upgrades on existing vehicles will make them fully autonomous.
If you own a Tesla, you’d be able to rent your vehicle to the robotaxi platform and make money from your car when you aren’t driving it.
By the end of 2019, Tesla plans to deliver full autonomy, although you’ll still have to supervise the driving.
By 2020, the goal’s to eliminate the need for supervision.
And then sometime after that, pending future regulatory legislation, Teslas will be driving around without anyone on board.
Don’t Bet Against Elon Musk
So what does this all mean for you?
Well, Musk is known for making outlandish claims that he often retracts or fails to back up. On the other hand, outside of his work as Tesla’s CEO, he also builds rocket ships that land themselves at SpaceX.
That makes it difficult to bet against the guy … although there might be a few stumbles and broken windows along the way.
Regards,
Editor, Automatic Fortunes
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