Betting Against Elon Musk Is a Bad Idea
A lot of people dislike Elon Musk, and I have no idea why. He built four (yes, FOUR) billion-dollar companies in the last 20 years. He revived the space race, changed the car industry, and led an energy revolution. Oh, and he made Tesla Inc (NASDAQ:TSLA) shareholders rich.
That’s more than most of us could do in 10 lifetimes. Yet not a day goes by without some columnist calling Elon Musk “delusional” or “overhyped.”
They even complain that the Tesla stock price is too high, as if Musk can do anything about that. The Tesla stock price is high because the market deemed that a fair price. If it continues to break new highs, it’s because investors vote with their dollars.
So why does their criticism of Tesla turn into rants against Elon Musk? There must be a reason. Is it regret for not having invested in TSLA stock earlier?
I’m not sure, but the Musk-hate reminds me of something…the anti-Wall Street hysteria that started after the financial crash of 2008. People really had it in for the banks but, at least in that case, they had good reason to be mad.
Wall Street executives crashed the economy, then walked away with fat bonuses. They were exposed as slick-haired, smooth-talking con men who only cared about getting rich.
But that doesn’t mean Occupy Wall Street was going to bring down bank stocks. Sorry to spill the beans, but investment decisions should be based on facts, not emotions.
And the facts show that the biggest Wall Street banks got even bigger after the crisis. Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) were able to wipe out a bunch of smaller competitors.
Just look at how bank stocks have performed since 2009.
Chart courtesy of StockCharts.com
It didn’t matter that everyone was screaming bloody murder. The public outcry did nothing to slow down bank stocks, and the same story is true about TSLA stock. No matter how much venom is directed at Elon Musk, the Tesla stock price continues to rise.
Why Tesla Stock Price Surged 120%
Don’t get me wrong: it’s not like Tesla is perfect.
According to The Wall Street Journal, the company missed more deadlines than Tom Brady has Super Bowl rings. It’s even fair to say that Elon Musk is responsible for these mistakes. (Source: “Elon Musk Sets Ambitious Goals at Tesla—and Often Falls Short,” The Wall Street Journal, August 15, 2016.)
He sets the bar really high, beyond the grasp of his company really, then forces them to out-work and out-innovate the competition. Some investors think it’s a silly strategy because Tesla looks bad when it falls short of expectations. I disagree.
Sure, Tesla missed 20 deadlines and 10 major goals in the last five years. But business isn’t a race, and we need to stop treating it like one. Tesla did meet those goals eventually. Isn’t that what we should be looking at?
Deadlines are just rough blueprints for the future. Investors shouldn’t take them so literally.
Can you imagine investors bailing on Apple Inc. (NASDAQ:AAPL) stock if the original “iPhone” was delayed by a quarter? Would that have derailed Apple’s eventual rise to the top of the smartphone market?
Yet investors made that exact mistake with TSLA stock.
Between 2015 and 2016, the share price fell from a high of $280.20 to a low of $143.67. The sharp drop was driven in large part by missed deadlines. But, eventually, the company accomplished what it set out to do, and the share price recovered.
Take, for instance, Tesla’s “Model X” shipments. Despite being a few months behind schedule, the shipments did eventually get there. Likewise, a few hiccups in production delayed the “scaling up” part of Musk’s vision. But Tesla did eventually scale up its production.
As a result, the Tesla stock price surged past previous highs, breaking the $300.00 level. It even topped $325.00 in early May, meaning that investors who bought the dip could have made upwards of 120% gains.
I believe that TSLA stock can maintain its upward momentum. Why? Because investors finally seem to be taking Musk’s promises with a grain of salt, which hopefully means they’ll be a little more patient when evaluating his success.
TSLA Stock Has an Ace Up Its Sleeve
Speaking of crazy Elon Musk promises, you may have heard his strange commitment to the government of South Australia. He promised to fix their energy issues in 100 days.
Stranger still, he made the commitment on Twitter.
Here’s how it went down and, more importantly, why investors should care:
- Massive storms caused blackouts in South Australia.
- Energy infrastructure was damaged, so prices surged.
- Musk’s energy company, SolarCity Corp (NASDAQ:SCTY), offered its batteries to cope with the storage issues.
- Musk reiterated the offer on Twitter, saying it’ll be done within 100 days.
- The Prime Minister of Australia thanked him on Twitter.
If this deal actually goes through, it’ll be a huge win for SolarCity. And since SolarCity is now part of Tesla, it’ll be a big win for TSLA stock.
In other words, Tesla can make a ton of money by selling these batteries as energy storage solutions. What’s the market size? Only every municipal, state, and federal government that wants energy independence.
Policymakers in other countries, such as Ukraine and New Zealand, have already contacted Musk to discuss their own energy issues. (Source: “Elon Musk’s pledge to fix South Australia’s energy issues prompts Ukrainian PM to get in touch for talks,” CNBC, March 14, 2017.)
Here’s the best part: none of this publicity cost shareholders a dime.
All the TSLA stock bears that were worried about SolarCity’s high cost of acquiring new customers need to eat their words. Musk is grabbing potential business from his personal Twitter account for goodness’ sake! He’s using his star power to move products.
While the Tesla-Australia story made headlines in the U.S., investors didn’t really grasp how important it is to the future value of Tesla stock. They were just amused that it happened on Twitter.
Far more important is the fact that Tesla’s master plan is working.
Investing billions of dollars into a gargantuan battery factory (called the “Gigafactory”) now seems like a brilliant move. Not only does it slash the cost of making batteries by 35%, it gives Tesla the scale to meet demand. (Source: “Tesla is now claiming 35% battery cost reduction at ‘Gigafactory 1,’” Elektrek, February 18, 2017.)
Should You Buy Tesla Stock?
Investors are sorely under-appreciating this potential. They are obsessed by the upcoming “Model 3” shipments and the electric semi truck that will be unveiled in a few months. I have no idea why those issues take top billing in their minds. Perhaps it’s because Tesla began as a car company.
Nonetheless, it would be foolish to pretend that Tesla is a car company. Tesla is selling solar roofs, solar panels, stackable batteries, electric charging stations, electric cars…the list keeps getting longer. Musk has hinted that Tesla could even get into the factory-building-business.
After all, Tesla is famous for its factories. They have robots that build other robots. It’s the factory of the future, so to speak, and Tesla is one of the few companies that knows how to build them. That could also be a lucrative business line for the company.
I know Tesla sounds like a company with an attention deficit disorder. One day it’s cars; the next, it’s batteries. I know how that sounds. But, oddly enough, the connections become clear over time..
Like all good businesses, Tesla is only adding parts that will feed into its bottom line. I understand it doesn’t look that way, but that’s what makes Elon Musk so brilliant. He develops extremely creative business models to make old ideas work like they never have before.
The rest of us find that difficult to understand because there’s nothing to measure it against. It’s literally being done for the first time! But here’s the thing: anyone who does anything for the first time usually gets rich. So, I make sure to add a heavy, heavy premium to the Tesla stock price.
At $315.00 per share, I still think TSLA stock has room to the upside.
Musk isn’t a trust-fund kid. He didn’t inherit his wealth, nor does he squander his money on useless stuff. He actually reminds me of great American industrialists like Henry Ford. He builds real things, and he makes real lasting jobs in the United States.
Plus, most of his net worth is tied up in Tesla stock, SpaceX, and SolarCity, which means that, unlike Wall Street CEOs (or most other CEOs, for that matter), Musk has skin in the game. He’s in the same boat as every other Tesla shareholder.
So, I don’t know why people hate him so much.
How can you dislike a guy who puts his own money on the line? If nothing else, you know he believes in the company.
At one point in the waning months of 2008, Musk even teetered on the brink of financial ruin. Tesla and SpaceX were having trouble getting off the ground (both literally and figuratively), and Musk was days away from going broke.
Bear in mind that this was after he sold PayPal Holdings Inc (NASDAQ:PYPL) for $1.1 billion. He could have retired long before starting SpaceX and Tesla, but instead of sipping cocktails on a beach somewhere, he was putting his wealth on the line. Why? To create new companies.
A guy like that plays to win—investing in him seems like the most obvious thing in the world.