Tesla Stock Dominates 2020
There can be little doubt that one tech stock above all the rest has come to dominate 2020: Tesla Inc (NASDAQ:TSLA).
Tesla stock has seen its price climb by over 250% this year, an obscene gain in profits. And those gains have come during an economic collapse the likes of which we haven’t seen in about 100 years.
Given those two factors, TSLA stock remains on the tips of every tech investor’s tongue. But does it have any more room to grow? Short answer: yes. Long answer: it’s complicated.
In order to get a better picture of what Tesla stock has in store for the future, we have to understand how the company got to where it is now in 2020.
The thing is that TSLA stock has always held immense potential. I’ve been covering it since I began working at Profit Confidential way back in 2016, and I’ve been very bullish on Tesla Inc since day one.
The calculus for me was easy. This was a company that was looking to revolutionize the way we build cars (transforming them from CO2 factories into zero-emission vehicles) at the exact moment when climate change awareness was gaining both political and social traction.
Tesla was the perfect market solution to a demand that was no longer only coming from tree-hugger hippie types. Green energy was gaining steam among huge swaths of the population and emissions reductions were now mandated by law in many countries.
Add in the fact that Tesla CEO Elon Musk was, and remains, a larger-than-life personality with a huge and sprawling cult following (sometimes harmful to Tesla stock but very often beneficial, similar to the effect that Steve Jobs had on Apple Inc. (NASDAQ:AAPL)) and you have a pretty potent combination to see massive gains.
It was a promise that I and many other market analysts saw, even as the haters lined up to call us fools and call Tesla Inc fool’s gold.
It seems the fools now are those who didn’t listen and missed out on the awe-inspiring triumph that TSLA stock has turned out to be.
Chart courtesy of StockCharts.com
But let’s say you’re late to the party or perhaps you were skeptical in the past: does that mean you should avoid investing in Tesla stock now?
As I said earlier, there is still value to be gained from TSLA stock. It has by no means hit its ceiling. But that isn’t to say Tesla stock has no potential pitfalls. In fact, there are quite a few, and the threat of a correction is present.
So let’s dive in and see what Tesla has to offer.
TSLA Stock in 2020
This year has been an unbridled success for Tesla stock, even while all around us the world is in a state of flux and there’s consternation regarding COVID-19. In fact, the coronavirus economic downturn is partly why TSLA stock is doing so well right now.
Tesla Inc was able to finally deliver on many of its production and distribution goals in 2020, something that investors and analysts have long been awaiting. We’ve always known the potential was there; what we needed to see was the fulfillment of that promise.
Now that we have seen some concrete sales numbers, Wall Street is fully on board with Tesla’s vision of the future.
Joe Osha, an analyst at JMP Securities LLC, was impressed by Tesla’s recent sales figures, upgrading the company’s outlook.
“If the company can manage 90K units during an extraordinarily challenging quarter, there is no reason that TSLA cannot be shipping 130K to 140K units a quarter by the end of the year in our opinion. That puts TLSA on a trajectory to ship 757K units in 2021,” said Osha. (Source:”Tesla Will Surge Another 24% Over the Next Year as It Grows to $100 Billion in Revenue by 2025, Says New Biggest Bull on Wall Street (TSLA),” Business Insider, July 6, 2020.)
Projections now have the company delivering over 2.5 million vehicles, hitting $100.0 billion in revenue, and having an EBITDA margin of 20% by the end of 2025.
“We believe that TSLA is a category killer that is still early in the process of building a dominant position in electric vehicles, and the stock needs to be valued in comparison to other similarly successful companies,” said Osha. (Source: Ibid.)
Piper Sandler Companies, another respected investment bank, was similarly gushing about Tesla Inc’s future.
“It’s hard to see how competitors can catch up,” said Piper Sandler. (Source: “Tesla Will Continue Its Monster Run and Jump Another 55% to $2,322, Wall Street Firm Says,” Business Insider, July 14, 2020.)
The firm said Tesla might be able to deliver up to 500,000 cars in 2020, which would be impressive, considering the temporary factory closures caused by the coronavirus pandemic.
Piper Sandler is even more bullish than JMP Securities, believing that Tesla Inc could deliver as many as four million cars by the end of 2025 and capture almost 10% of the market share in the United States.
Another important part of Piper Sandler’s consideration was the tech advantage that Tesla has.
And the Tesla love doesn’t stop at Wall Street; we’re seeing retail investors fall in love with the company as well.
Robinhood Markets, Inc., an investing app especially popular among newer investors and millennials, saw about 40,000 accounts add Tesla shares in a four-hour period on July 13. (Source: “Ten Thousand Day Traders an Hour Are Buying Tesla Shares,” Bloomberg, July 13, 2020.)
Tesla stock remains a top 10 stock on Robinhood among investors, which isn’t necessarily a good thing, considering Robinhood’s controversial status of having “gamified” investing for the app-addicted, video-game-raised generation. (Source: “Robinhood Has Lured Young Traders, Sometimes With Devastating Results,” The New York Times, July 8, 2020.)
That’s a topic for another time, and, frankly, it doesn’t mean TSLA stock is a security for suckers. Far from it. What it does show is that Robinhood users, regardless of how informed they are about investing, are keen on getting in on the hottest tech stock of the year. This shows that both institutional and retail investors are going to provide the tech company with seemingly endless flows of capital.
All that combines to make Tesla stock among the top tech stocks available right now.
But considering that TSLA stock has risen so much, how much higher could it possibly go?
In order to understand, you have to view Tesla not just as a car company, but also as a renewable energy stock and an autonomous vehicle stock.
It’s worth noting that Tesla is now the most valuable car company in the world, with a market cap of about $280.0 billion, dwarfing its nearest competitor, Toyota Motor Corp (NYSE:TM), by over $70.0 billion.
Tesla Stock as Renewable Energy Stock
It’s easy to forget that, amidst all the excitement circling the automaker part of Tesla, it’s also a renewable energy stock. I mean, obviously its cars are popular precisely because they are emission-free, but don’t forget that Tesla Inc is also focused on what’s under the hood, namely the battery that powers its vehicles.
The company hopes to use its batteries to power homes via solar panels and other green energy technologies, ultimately revolutionizing how we obtain and store power for years to come.
At least, that’s the overall goal of the company. And it’s a lofty one, not just socially, but also from the business side of things. Tesla is nothing if not ambitious.
But if it is able to deliver on this renewable energy stock promise, then we can expect to see huge gains from TSLA stock, potentially even outpacing the current massive jump it has undergone in 2020.
That’s because renewable energy stocks are among the most prized tech stocks on the market right now.
The UN estimated that $2.6 trillion was invested in new renewable energy capacity (not including large hydro) from 2010 to 2019. That approximately quadrupled the global renewables capacity commissioned at the end of 2009. (Source: “Global Trends in Renewable Energy Investment 2019,” United Nations Environment Programme, last accessed July 16, 2020.)
Bloomberg NEF reported that $332.0 billion was invested in green energy just in 2018. (Source: “Clean Energy Investment Exceeded $300 Billion Once Again in 2018,” Bloomberg NEF, January 16, 2019.)
With all that money flowing in, on top of all the investment capital, Tesla won’t exactly be starved for cash flow (should things go as planned).
It’s important to remember that, for all that Tesla Inc does, it has always marketed itself as an energy company as much as a car company. Tesla is hoping to grow not just via car sales, but also via renewable energy sources like solar panel roofing.
“The future that we all want is the future where you look around and the roofs are gathering energy and doing something useful,” said Musk. (Source: “Tesla’s Next Big Challenge Is Bringing Solar Roofs to Superfans,” Bloomberg BusinessWeek, February 19, 2020.)
Tesla’s “Solar Roof” is a mix of glass roof tiles and solar energy-collecting tiles made at Tesla’s factory in Buffalo, New York.
All this comes alongside the company’s upcoming “Battery Day” on September 22, a highly anticipated event likely meant to celebrate the company’s strides forward on the tech side of things. The hype from the announcement of this event helped juice Tesla stock prices significantly. (Source: “Tesla Surges 16% Amid Battery Optimism, Speculation of S&P 500 Inclusion,” Business Insider, July 13, 2020.)
Musk claims there will be a “game changing” announcement at that event regarding its batteries, so we can anticipate seeing huge gains up to and beyond that day.
All this adds further evidence that, as a renewable energy stock, Tesla Inc remains on top of its game, even as the car part of its business grows ever more demanding.
Tesla Stock as Autonomous Vehicle Stock
One thing to remember about Tesla Inc is that the company is leading the industry when it comes to autonomous vehicles. In fact, many current Tesla models have autonomous vehicle functions which are even legal in certain regions (with restrictions, of course).
Being the first to conquer the autonomous vehicle sector, as you’d expect, would be a massive boon for TSLA stock.
After all, self-driving cars could become the dominant form of transportation in the coming decades. If Tesla is able to get out in front of this technology and design the go-to autonomous vehicle systems (something it already seems likely to achieve), we could see Tesla stock soar even higher than it already has.
What’s more, Tesla Inc has also claimed interest in entering the autonomous trucking industry.
Land transportation of goods via trucking is a massive business, worth roughly $700.0 billion in the U.S. alone, accounting for 71% of all the freight in America, and comprising roughly six percent of all full-time jobs in the country. (Source: “11 Incredible Facts About the $700 Billion US Trucking Industry,” Business Insider, June 3, 2019.)
As you can imagine, trucking companies that want to dramatically reduce overhead are keen on seeing autonomous vehicles hit the roads as soon as possible. While we have a long way to go before politicians are going to give the green light to autonomous vehicles, what is undeniable is that this day is coming. It’s not just a possibility, it’s an eventuality.
Now, to be fair, there is a lot of competition in this space. Not only are other car manufacturers looking to develop their own autonomous vehicle systems, but big tech companies have thrown their hats in the race as well.
Apple and Alphabet Inc (NASDAQ:GOOG) are just two of the names that have been linked at one time or another to autonomous car tech development.
Tesla, of course, holds an upper hand on its tech behemoth rivals; it actually, you know, makes cars. When’s the last time you’ve seen an Apple logo on the back of a sedan sitting in front of you during rush hour?
Tesla is going to be able to distribute its autonomous driving tech easily through software updates for its vehicles (something it has done before). Which is to say that, in the span of a single day, we could see millions of Tesla vehicles suddenly become autonomous in the near future, provided it’s legal and the technology is safe.
Again, this is not likely to happen (on either front) for some time yet. But much like everything else that Musk handles, the payoffs are usually worth the wait.
Tesla stock, as I mentioned before, has been a stock I’ve covered for years. Sure, it’s had periods of inaction or even downright implosion, but there was also the promise of something bigger and better on the horizon. And, up to this point, TSLA stock hasn’t failed to deliver.
As far as its automotive competitors are concerned, they simply can’t match Tesla Inc when it comes to research and development. Tesla, after all, is a tech company first and foremost (a green tech company, to be more precise) that counts innovation among its core principles.
Other automakers, by contrast, are perfectly happy to trot out the same models year after year with slight improvements, so long as the money keeps flowing in. Well, with Tesla making some big moves, that money may run dry sooner than they think.
Considering that Tesla Inc is now valued the highest among all automakers, it’s clear which way the industry thinks the wind is blowing.
Possible Tesla Stock Correction
Okay, so here’s the bad news: TSLA stock is vulnerable. Yes, it has seen massive gains. But while I believe it still has a huge amount of gains ahead of it, there are some concerns that I’d be remiss not to share with you.
First and foremost is the valuation. Yes, Tesla Inc is impressive and yes, industry analysts (myself included) predict hundreds of thousands, if not millions, of Tesla vehicles on the road in the near future.
The problem is that the hype train has been on the ground far longer than these vehicles, chugging along and pulling Tesla stock’s price ever higher.
As illustrated by the Robinhood data, it’s clear that the younger generation of investors is in love with TSLA stock. And why not? For most investors, it’s been nothing but a win.
The problem, of course, lies in under-delivering on its expectations.
Tesla Inc has been known to fall short of delivery or production projections. In fact, it’s these shortcomings more often than not that have resulted in Tesla stock taking a sizable hit.
Now, with what we’re seeing with Tesla’s infrastructure expansion around the globe, we’re less and less likely to see these hiccups.
Furthermore, considering what the company was able to achieve during the pandemic lockdown, there’s good evidence that we’ve seen the last of Tesla Inc’s failure to fulfill the predictions.
But it remains a concern until we can, with 100% certainty, be sure that the company will meet its projected numbers going forward.
Even if Tesla does fall short of said numbers, that isn’t the end of the world for TSLA stock. As I said, it has taken that hit before.
Still, if the company fails enough times, it may solidify that failure into a bad reputation, That, in turn, would sour investors on the company more broadly, with some asking whether Tesla can deliver on its other lofty promises.
We’ve already seen quite a few investors sound the alarm, concerned that Tesla Inc simply cannot live up to the hype.
And that brings us to the most worrying fact of all: the massive short position taken out against Tesla.
According to financial analytics firm S3 partners, Tesla has an unprecedented short position against it of nearly $20.0 billion, and that number is set to rise. (Source: “Tesla Is Close to Becoming the First Stock With a $20 Billion Short Bet Against It (TSLA),” Business Insider, July 10, 2020.)
What this means is that a huge portion of the stock market believes that Tesla Inc is overvalued, which is never a good sign.
But that doesn’t necessarily mean they’re right. Short positions on Tesla stock have routinely been pounded in the past, as the company has long held a huge reservoir of haters believing Tesla and Musk to be nothing more than dream-sellers.
But with that dream seeming more and more of a reality, many short-sellers could end up regretting their investment decisions.
Should TSLA stock continue to soar, for instance, we may see many of the short positions close prematurely because the price has simply gotten too high. If many short-sellers rid themselves of their TSLA shares all at once, we’d have what’s called a “short squeeze,” which, in an ironic twist, would end up driving Tesla stock higher.
Which is a long way of saying that TSLA stock is not without risk. But, on the flip side, there’s a veritable cauldron of potential bubbling over at Tesla Inc, just waiting to burst over via any one of its major gambits.
Few companies capture our attention the way Tesla Inc has over the past few years.
At once a car, energy, and tech company, Tesla is nothing if not ambitious. And those ambitions seem to be finally paying off, with huge gains for investors over the past year.
While there is certainly a chance that Tesla stock will end up losing some of the gains it made in 2020, there’s also a good chance that TSLA stock will continue to rise as its long-awaited seeds grow and begin to bear fruit.