Here’re 3 Reasons to Be Bullish on TSLA Stock
Although the bears pounced on Tesla Motors, Inc. (NASDAQ:TSLA) last week, don’t count Tesla stock out of the fight yet. The downgrade from Consumer Reports cost TSLA stock a few basis points, but there’s still a reservoir of unexplored gains in this gold mine. Here are three simple reasons that Tesla stock could have another breakout year in 2016.
The first and most compelling reason for a continued boom in Tesla stock is Elon Musk’s long-term vision. Musk wanted to build an affordable electric car that people would actually enjoy driving, but he recognized that it may not be the best starting point for Tesla.
In fact, the value of Tesla stock would be rock bottom if Musk had tried to start with a low-cost electric car. Luckily, Elon Musk is nobody’s fool. Another reason to stay bullish on TSLA stock is the scope of technological improvement to existing Tesla vehicles.
Owing to the modernity of Tesla interfaces, Tesla vehicles will get regular software updates that can fundamentally alter their performance. Take for instance, advances in self-driving capability. As Tesla engineers perfect the technology, drivers will see the benefits by simply updating the software on their Tesla vehicle.
The third argument for Tesla stock is really a clarification about the notorious Consumer Reports downgrade. The publication withdrew its recommendation for the Tesla Model S because of unreliable production, a charge that sent TSLA stock into a tailspin last week. But there were other things in the report that the mainstream media didn’t cover.
Let’s take a closer look.
1st Reason to be Bullish on TSLA Stock: Endgame
During Elon Musk’s time in university, he earned not one, but two undergraduate degrees. Both have helped him build Tesla stock into the valuable asset it is today. The first is a degree in physics from the University of Pennsylvania and the other is an economics degree from the Wharton School at UPenn.
Physics AND economics? At first blush, the combination might seem a little strange, but Elon Musk knows what he’s about. He was chief programmer at PayPal and now he’s chief engineer at Tesla. He understands the technical demands of making a great product.
But that alone wouldn’t have built Tesla stock. He needed to innovate on Tesla’s business model as well—and he did. The Tesla Roadster was the topmost plank of a downward sloping price ladder, followed by the slightly more accessible Tesla Model S.
Soon the Tesla Model X will move the price point lower still, setting the stage for a $35,000 Tesla Model 3 sometime in 2017. Do you see the genius? By creating a luxury sports car with sex appeal, Elon Musk dramatically altered the value proposition of buying an electric car. (Source: Elon Musk reveals a tentative timeline for the $35,000 Tesla Model 3, Mashable, May 7, 2015.)
Don’t buy a Tesla because of a moral obligation, he said; buy a Tesla because you really want to drive that car. Musk made the decision easy for customers and they responded by making Tesla Model S the best selling car in its class.
No wonder Tesla stock jumped by 43.4% since the start of 2014.
2nd Reason to be Bullish on TSLA Stock: High-Tech
Maybe some people will still find this next statement controversial, but I make no apologies for it. Elon Musk is greater than Steve Jobs. Not only is Musk an absolute perfectionist for product development (like Steve Jobs), but he’s got the technical chops to match Steve Wozniak.
Wozniak, or the “Woz,” is the lesser known, but equally important founder of Apple Inc. His engineering wizardry, matched with the vision and orchestration of Steve Jobs, gave us the personal computer. Elon Musk is both Jobs and Woz, and that alone should ensure a high premium on TSLA stock. Have faith in the talent of founders.
Let me give you an example of how that pays off. In October 2015, Tesla released an update to its software on-board the Model S. Part of the update was a feature that Tesla calls “Autopilot.” Autopilot is a turning point in self-driving technology. (Source: “Your Autopilot has arrived,” Tesla website, October 14, 2015.)
The Tesla Model S can automatically change lanes, steer within a lane, and even control speed within traffic. It does so with a forward radar, a forward-looking camera, 12 long-range ultrasonic sensors positioned to sense 16 feet around the car in every direction at all speeds, and a high-precision digitally-controlled electric assist braking system.
Yes, I know that many other companies are also developing driverless technology. That’s not what impresses me the most. What amazes me is that all Tesla had to do was update the software and Model S owners gained access to the feature. The hardware was already lying dormant in their Tesla.
That means Tesla stock has an edge. Its value depends on Tesla’s ability to win and secure market share. Not only do they have a gorgeous and best-selling luxury sedan, but they can continuously keep those cars up-to-date with the latest innovations.
That’s the kind of elegant and efficient feature Steve Jobs would have dreamed up, but executed with the technical savvy of someone like Steve Wozniak.
3rd Reason to be Bullish on TSLA Stock: Customer Satisfaction
Lastly, we have the famous Consumer Reports downgrade. There’s no denying the Model S recalls or the glitches in Tesla’s manufacturing. I don’t want readers to think I’m attempting to discredit any of those facts. My beef with the Consumer Reports is simple: it shouldn’t affect Tesla stock in the slightest. That’s all.
After all, Consumer Reports also noted that “Tesla owner satisfaction is still very high: Ninety-seven percent of owners said they would definitely buy their car again.” (Source: “Tesla Reliability Doesn’t Match Its High Performance,” Consumer Reports, October 20, 2015.)
Apparently, the rapid response from Tesla also managed to keep customers happy despite the inconvenience of a recall. Obviously, the efficiency of Tesla’s response time will likely drop as the company sells more cars, but the kinks should be worked out by then.
After all, these types of minor issues are endemic to most carmakers, especially in their early stages. Tesla vehicles still command tremendous loyalty from customers, meaning investors should show just as much fidelity to Tesla stock and Elon Musk.
Remember, trust in the founder.
Stay in the loop. Follow Gaurav on Facebook and Twitter.