Tesla Stock Is Positioned for Future Success
It wasn’t so long ago that the big story of 2020 was the success of Tesla Inc (NASDAQ:TSLA). Tesla stock started the year hot, gaining as much as 100% before the novel coronavirus (COVID-19) derailed the economy.
With TSLA stock falling, much like the rest of the stock market, I’ve become especially bullish on the company’s outlook post-coronavirus. And the Tesla just got another huge boost after the company promised to begin producing ventilators.
There are two things to note about this new promise from the company. First, one of the biggest concerns regarding the COVID-19 pandemic is that hospitals will run out of beds and supplies, leading to hard choices and, in the worst-case scenario, deaths.
Providing more ventilators will be a good way to help mitigate this concern. If you’re feeling particularly optimistic, you can argue that an influx of ventilators could help us end widespread isolation earlier, which in turn would get the economy back on its feet and send stocks soaring.
And that’s not too much of a “pie-in-the-sky” scenario anyway. President Donald Trump recently made headlines with a recent tweet in all capital letters:
“WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF. AT THE END OF THE 15 DAY PERIOD, WE WILL MAKE A DECISION AS TO WHICH WAY WE WANT TO GO!”
The implication being that, yes, COVID-19 can be deadly, but speeding along a total economic collapse by shutting down all non-essential services for months could potentially be even more harmful.
Whether you believe that is the case, at the end of the day, the reality is that we may see a prolonged quarantine and shutdown or we may see things get back to normal faster that we think.
The only thing that really changes for investors right now is the window of opportunity to find prime tech stocks at their bottom.
If investors wait too long, they won’t maximize their profits (even if it is the safer bet), but if they rush in, they may buy at a plateau instead of the true bottom. It’s a hard balance to strike.
But the second—and more important—thing happening with Tesla stock is that the company is developing all-important connections with governments that will, in turn, pay off big-time down the line.
Trump gave Tesla, Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) the go-ahead to make ventilators in order to address the shortage of these life-saving medical products that are in high demand due to the coronavirus. (Source: “Ford, GM, Tesla Given the ‘Go Ahead’ to Produce Ventilators, Trump says,” TechCrunch, March 22, 2020.)
The ventilator production, if it can be done speedily enough, will save lives.
New York state has already pleaded for more supplies, including ventilators, from the federal government as cities, states, and countries around the world struggle to deal with the immediate threat posed by COVID-19.
Trump could, if he were so inclined, use the Defense Production Act to compel private industry to produce materials needed for national defense.
He has so far refused to do so, instead claiming that he’s using it as leverage in negotiations with private-sector companies in order to convince them to make products for the public good. (Source: “Trump Rejects Calls to Directly Use Defense Production Act,” The Hill, March 22, 2020.)
It’s a delicate act that, one way or the other, could sway the immediate fortunes of top stocks.
TSLA Stock Gets Government-Friendly
No matter what pans out in regards to the Defense Production Act, what’s important to note is that Tesla will be producing ventilators to help ease the supply crunch brought on by COVID-19.
And that is a great move for Tesla stock.
Aside from the positive PR that Tesla, Ford and GM are certain to get out of this plan, there’s another important aspect that will be sure to benefit Tesla: it’s going to get cozy with the White House.
There’s no doubt that the Trump administration is keen on containing the virus pandemic, obviously for humanitarian reasons, but also for political ones. If the coronavirus kills millions of Americans and devastates the economy, well, that would be a tough sell for Trump’s re-election.
So while it would be a stretch to say that Tesla is going to save the administration, it can certainly do its part to help out.
And that’s something that, specifically for TSLA stock, is important. Much of the appeal of Tesla Inc is that its cars—the primary source of its revenue for now—are emissions-free. Sure, drivers save on gas, but they can also be content in that they’re helping ease the burden on the environment.
While Tesla vehicles in general can be a little pricey compared to the average sedan, one of the ways the company was able to sell the car was that there were government subsidies.
These subsidies were being provided in an attempt to get people to switch over to zero-emissions vehicles, with Tesla being a leader in that market.
But the Trump White House has been, shall we say, less concerned about climate change than the Barack Obama administration was.
President Trump has deemed climate change to be everything from being overblown to being a Chinese hoax. It’s safe to say then that Tesla does not have close friends in the Trump White House.
But that could change with this new ventilator production plan. If Tesla is able to help reduce the burden being borne by the Trump White House, that may lead to a development of closer ties between the government and Tesla.
In that eventuality, Tesla may see subsidies back on the menu. That would help spur sales that were already impressive pre-coronavirus, and that I believe will continue to impress after COVID-19 has run its course.
Politically, this is a win-win situation for Tesla.
If the company helps Trump in his time of need, there’s a good chance that Tesla will make valuable connections in the process, fostering a better relationship between it and the administration if Trump is re-elected.
And if Trump finds himself without a job after the election, that will mean we’ll likely see Joe Biden as president and a return to climate-change reduction policies, which could mean lucrative federal subsidies to help sell Tesla vehicles.
It’s worth noting that Tesla stock saw a bump in gains from the announcement that it would be looking to produce ventilators.
That boost could grow if the company excels at the task, something that CEO Elon Musk would love to deliver. If there’s one thing that guy is known for, it’s for making big promises (and occasionally delivering).
So TSLA stock is poised for big gains either through a successful Trump administration or via a new administration led by Biden. In either scenario, the future is bright for Tesla stock, even if the coronavirus is making it hard to sustain gains on the stock market right now.
Chart courtesy of StockCharts.com
The coronavirus stock market has certainly made it difficult to be future-focused. After all, who wants to think about tomorrow when the “end of the world” is happening today?
Joking aside, it’s hard to consider the future of the stock market when so much is going on right now. But that’s what the market is all about: projections and looking to the future, and not being caught up on the past.
In that regard, TSLA stock looks particularly well suited to make a big comeback when the economy gets rolling again.
First you have the company’s stellar performance in 2020 pre-COVID-19. While Tesla stock may not see those gains overnight, it will likely reach its peak before long, especially when the economy recovers.
Second, Tesla is a world leader in one of the fastest-growing industries, renewable energy, which is likely to see gains as countries become more concerned about climate change.
Third, with the company’s plans to build ventilators during the coronavirus crisis, Tesla is furthering its relationship with the U.S. government.
All that combines to make TSLA stock very exciting as we move toward a recovering stock market once COVID-19 passes.