There Are Plenty Of Arguments For And Against Investing In Tesla

DEC 3 2018 BY EVANNEX 7

BULL AND BEAR CASES FOR INVESTING IN TESLA (OR NOT)

Tesla is what stock market pundits call a “story stock.” But in fact, there’s more than one story here, and there are several very different reasons to invest, or not invest, in the innovative automaker. Some boosters want to be part of Elon Musk’s bold mission to change the world, while others simply see a company with meteoric growth and fanatical brand loyalty. Some skeptics point to the unlikelihood of a small startup scaling the auto industry’s proverbially punishing barriers to entry, while others just can’t get past Musk’s unconventional personality and snarky tweets.

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Professional money manager POVs on Tesla reflect a variety of differing outlooks on the company’s future (Instagram: marysia_mendakiewicz)

At a recent roundtable of professional money managers convened by Fortune, several of these positive and negative stories were discussed. It’s interesting to see how different investors can see the same company in radically different lights, but it just goes to show that there’s more than one way to make money in the market – just as, as the world is learning, there’s more than one way to build cars.

Many believe that much of Tesla’s lofty stock market valuation has to do with its leading position in self-driving technology, which has the potential to revolutionize the world’s transportation systems. Catherine Wood, CEO of ARK Invest, a firm whose investments focus on “disruptive innovation,” sees Tesla as “primarily a mobility-as-a-service play” in the long run. “Right now, it’s selling for two times trailing revenues, so it’s valued at $45 billion vs. $20 billion in sales. Had Tesla remained private, it would have a much higher valuation.”

For Lori Keith, Portfolio Manager at Parnassus Investments, which specializes in socially responsible investing, a company’s environmental benefits are important, but strong financials have to be there too. “For us, it’s really important to consider environmental, social, and governance [ESG] factors. We’ll never put capital to work in a company that has only a good fundamental story. By the same token, if it is only a positive ESG story without strong business fundamentals, that would not be a focus for us.”

Above: Fortune’s roundtable of professional money managers discuss Tesla (Source: Fortune via Yahoo Finance)

Count Kate Warne, an Investment Strategist at Edward Jones, among the skeptics, at least for now. “We don’t follow Tesla. But part of the reason is, their debt’s junk rated. We wouldn’t look at it until it becomes investment grade. In general with companies, we’d look at the credit rating before we even look at other characteristics. We’d rather be later and not have quite as high returns but wait until the cash flows are more stable and bondholders can be a little more comfortable.”

Many in the staid realm of stock punditry are spooked by Elon Musk’s refusal to act like a typical pin-stripe-wearing, platitude-speaking CEO. ARK’s Catherine Wood, however, takes a long-term view. “What we’ve seen with visionary leaders leading innovation, whether it’s Jeff Bezos or Steve Jobs or Elon Musk, is behavior that is really born out of the frustration associated with short-term thinking in the equity markets. And they just don’t understand how we can’t understand.”

“If you look at the investment itself, what’s going to make Tesla move is a three-year lead in chip technology, battery technology, and data collection,” Wood continues. “And there’s also the concept that is going to get it catapulted into the world: mobility as a service, which many companies are just starting to think about.”

Above: Tesla’s Model 3 (Image: Plug in America)

“The Tesla Model 3 is the number-one selling car in the United States if you measure by revenue,” says Wood. “Think about that. It’s never advertised. They’re doing something right.”

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Written by: Charles Morris; Source: Fortune

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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7 Comments on "There Are Plenty Of Arguments For And Against Investing In Tesla"

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Kbm3

Tesla has the brightest, most visionary automotive CEO, plus they are one of the top destinations for the best hi-tech talent in the country.

This fundamentally drives Tesla’s advantage. The traditional auto manufacturers are handcuffed by their ICE investments and infrastructure as well as by the dealer networks. Any new manufacturer faces the difficulty of competing in a very, very capital intensive industry.

Tesla will reinvent manufacturing in the same way Amazon reinvented retail.

Tesla makes superior prodcts. They are subsuming manu supplier and dealer profits by virtue of vertical integration and direct sales.

In summary, Tesla is a hi-tech shark with laser beams in a pool of guppies.

REXtoCheckMate

Let’s not forget, we’re getting a Business Lesson right now in how established players cannot convince shareholders, and therefore cannot raise sufficient money to compete with the innovator.
Tesla is the new GM & Ford combined, along with the new Toyota, Honda and Mazda.

The Premium Qualities of Electric Drive means Tesla will ultimately own the whole market, since Ford, GM and the Japanese seem to have no real intention of competing.

Secondly, Buffet: Invest in the Management of the Company.
Mr. Musk has a long track record of success.

Third, I’d encourage doubters to track Tesla asset growth.
If you haven’t done that you may be in for a bit of surprise.

REXtoCheckMate

We’re also seeing in real time, the dealer network kill off innovation from the parent company, putting the company at risk. And GM and Ford have not addressed that issue.

QCO

No one company, Tesla or otherwise, is going to “own the whole market” in a competitive market economy.

Elon himself understands that, and has often said he is here to change an industry, not replace it with a monopoly.

Bunny

I think it’s unfortunate that a company whose stock is so high can only work on one project at a time.

It always seems to me Tesla acts like it’s in the big leagues but always plays small ball because of some limitations.
Talent? Money? Vision? Timely executions?
(The Model 3 was great example, oh crap you mean we need to ship them too? Pathetic execution. )

I’m not against Tesla by any means, it just always seems over rated for having to put off projects and now just recently Elon stating how close to going under during their last project does not instill confidence. Does this mean we see repeats again on the Y, pickup, semi ?

Brett

Tesla is far from working on one project. They have passenger automotive, heavy duty truck transport, solar, and energy storage projects on the go right now. People who compare Tesla to GM or other automakers are forgetting that they have diversified business interests.

I think you need to do a bit more research on the energy storage arm of Tesla to see that their execution is on projects is just fine. See the example of the South Australia project, delivered on time, on budget and making a pile of money for its owner.

James

If anything they have too many: Model 3, refresh S, refresh X, new Y, new pickup truck, new semi truck, and Roadster 2020…