Elon Musk Makes Tesla Stock a Compelling Energy Play

Tesla StockTSLA Stock Gains 33% Since Trump Victory

Now that Tesla Motors Inc has officially changed its name to Tesla Inc (NASDAQ:TSLA), all attention seems to have shifted from the company’s vehicle division to its energy segment.

With enhanced clarity on Tesla Inc’s future direction, Tesla stock has been the biggest gainer over the last three months.

Just three months ago, many people were writing off TSLA stock amid President Donald Trump’s expected unfriendly policies for the renewables sector, as well as Tesla CEO Elon Musk’s remarks on Trump. Tesla’s share price was hovering at around $190.00+ levels in early November 2016, but went to around $180.00 levels over the following two weeks.

However, as I had said earlier, there were many factors that were in favor of Tesla Inc’s business, including the fact that Tesla produces its cars and batteries in the United States and helps create a number of jobs. This has contributed to Tesla stock gaining almost 33% since Donald Trump won the presidential election on November 8, 2016.

The chart below shows the three-month performance of TSLA stock.

tesla stock Chart

The broader S&P 500 index has gained about eight percent in the same time period. Auto and energy sector stocks have been quite volatile over this time period. Tesla stock has shown phenomenal resilience over the past three months, and Elon Musk’s plans of making the company a sustainable energy behemoth are yielding results.

At the center of these ambitious plans is the one-of-its kind “Gigafactory.” Battery production started at the Gigafactory last month, and has gotten Tesla watchers excited, as the battery business is expected to grow into a big portion of Tesla Inc’s overall business pie.

Elon Musk has already stated that Tesla’s battery business would have a growth rate probably several times that of its car business. With the massive scale of cell production, the cost of battery storage is likely to come down, and this would make the battery projects more cost-effective.

Elon Musk claims that the new “2170” battery cell, produced at the Gigafactory, is the highest energy-density cell in the world, and also the cheapest. This new cell will not only be used in “Model 3” vehicles, but also will go into Tesla Inc’s energy storage products.

It was reported last September that Tesla would build a battery storage project for a California utility substation. The facility will store 80 megawatt hours of electricity, or enough electricity to power more than 2,500 households for a day. (Source: “Tesla to build California utility battery storage project,” Phys.org, September 16, 2016.)

Now this facility is up and running, with about 400 new “Powerpack 2” units installed at Southern California Edison Company’s Mira Loma substation in Ontario, California. These Powerpacks for the utility, which is part of Edison International (NYSE:EIX), were assembled at the Gigafactory in Nevada. 

Moreover, Tesla also mentions in its blog that bringing cell production to the U.S. allows the company to create thousands of American jobs. In this year, Tesla and Panasonic Corporation (ADR) (OTCMKTS:PCRFY) will hire several thousand local employees. According to Tesla, at peak production, the Gigafactory will directly employ 6,500 people and indirectly create between 20,000 to 30,000 additional jobs in the surrounding regions.

Given the potential of Tesla Inc in generating jobs in the U.S., and given the fact that now Elon Musk is one of the business policy advisers of Donald Trump, Tesla stock finds itself in a very favorable political climate, and can even be called a “Trump stock.”

TSLA stock, which was trading between $180.00 and $190.00 for most of November last year, closed at $257.48 on Tuesday.

Demand for the Tesla “Powerwall” is also likely to go up in the near future as the cost for consumers starts coming down. As mentioned on Tesla’s web site, the Powerwall can power an average two-bedroom home for a full day. It can be easily installed, either indoors or outdoors.

Elon Musk claims that, together with his company’s new solar roofs, Tesla Powerwall can substantially reduce the cost of energy. If this turns out to be the case, TSLA stock is likely to go through the roof.

TSLA stock has returned over 20% year-to-date, in contrast to the S&P 500, which has only gained 2.5%. It is true that Tesla stock was a more risky bet last year, with problems related to production and the SolarCity Corp (NASDAQ:SCTY) acquisition.

But now, Tesla’s trajectory as a sustainable energy company is more clear, and it has strong competitive advantages that would be hard for competitors to copy. This will likely help Tesla stock gain further and keep investors happy.