Admiring Tesla From Afar

Tesla-factory

Take a look at the Tesla chart below… If that does not scream “BUBBLE,” then what does?

Tesla Stock Chart

As the most talked about stock this year, Tesla ($TSLA), has generated an astounding 677% return throughout 2020! If the stock did not proceed with its 5:1 split, it’d be trading at $3,200 today!

Bloomberg has continued the pump priding, “Teslanaires,” like all of the folks found here.

For so much value, Tesla must be taking the road by storm. Not quite, according to Visual Capitalist, the car company generated 192,250 sales in 2019. Meanwhile, General Motors ($GM) and Ford ($F) sold 2,936,366 and 2,389,343 units, respectively.[1]

Even though Tesla only sold 3% of total units between General Motors and Ford, it’s market cap is six times the combined value of General Motors and Ford.

Think about that for a second… For every Tesla sold in 2019 there were 27 GM’s and Ford’s sold, but Tesla is currently trading with a market capitalization six times those!

Dare we take a look at price / earnings?

Tesla Price-to-earnings Chart

As of Q3 2020:

Ford: 0.00

GM: 13.33

Toyota: 14.10

Tesla: 818.72

Well, a Price-To-Earnings clearly cannot be used for analysis, unless someone genuinely is willing to pay $818.72 per dollar of earnings on this single stock….

Now that the scale of Tesla Stock growth has been highlighted, there some considerations that should be mentioned before retail investors continue to pump money into the stock.

Thinking about using options? Check out our intro to options HERE!

Is Tesla a Tech or Auto?

Over the past few years, the debate surfaced whether or not Tesla should be analyzed as a technology company, regardless of the industry their products are sold.

By the end of 2020, it is clear that this should not be viewed as a tech company. Electronic Vehicles are catching the attention of every car manufacturer in the industry; every auto manufacturer wants to get their hands in the pot.

Capital is even flow into newer companies that have failed to prove they have a viable product; see below.

Nikola Stock Chart

Nikola Corp ($NKLA), if you’re not familiar, made headlines this year as details came to light of their promotional video where an “electric” truck is found rolling down a hill from the forces of gravity rather than electric power…

*Check out the story here*

In addition to Nikola’s (fraudulent) failure, GMC has revealed the electric Hummer, Volkswagen announced the ID. 4, and Porsche’s Taycan has been dubbed the top luxury, electric vehicle.[2]

Still think Tesla is a technology company?

Well, Apple just announced they will start production in 2024 with “next level” bettery technology and an industry-breaking range capability.[3] The Project, Titan, has scooped up engineers from Tesla and Porsche.

Additionally, Waymo, for those unfamiliar, is Google’s self-driving car project.

With so much cash on both Apple’s and Google’s balance sheet, they both are better positioned to properly bring projects to life. The next catalyst amongst the crowd is Tesla’s inclusion into the S&P 500.

Welcome to the Family Tesla: S&P Inclusion

The implications of Tesla being added to the S&P 500 are far more crucial to those invested in S&P 500 indices than those invested in Tesla.

Money managers worldwide judge performance based on the income they generate over the return of the S&P 500; S&P estimates more than $11 trillion worth of assets are benchmarked to the S&P 500[4]

Additionally, the Wall Street Journal estimates that every $11.11 move in the share price of Tesla results in a one point fluctuation in the S&P 500 and a quarter point increase in the Volatility Index.[5]

By the end of trading on the last day before Tesla was added to the S&P 500, there was $90 billion worth of stock purchased by indices.

Therefore, will Tesla’s inclusion in the S&P 500 be a catalyst to the stock price?

The stock’s inclusion won’t necessarily be a catalyst, but money managers must be much more cognizant of Tesla’s performance and take a position, whether it’s up or down to impact their performance.

For what it’s worth, Tesla tumbled over 6% on its debut, December 21, 2020.

For The Average Tesla Retail Investors

Twitter

In addition to being a unique car manufacturer, Tesla is a superb marketer for its stock. Elon Musk maintains one of the most talked-about accounts on twitter for the outrageous, and borderline reckless, things he says.

People take a stance on Elon like they do politics. There are names on Twitter, like Mark Spiegel and Montana Skeptic, who have been socially and financially short Tesla for years. Their commentary is always interesting to listen to, regardless of the position you take on Tesla.

However, their traditional, fundamental analysis has proven obsolete with a company like Tesla; being net short Tesla for this long would put any fund manager under.

Other names, like ARK Investment, have set a price target of $7,000 by 2024![6]

As a retail investor you have to take the information out there, understand their motive for presenting it, and act accordingly. Mark Spiegal on twitter has much different intentions than Cathie Wood does pumping a stock…

Stock Split

Why really did Tesla do a stock split?

Retail investors genuinely look at a stock’s price, at face value, and determine if it’s “cheap” or “expensive.” Just because Chipotle ($CMG) is trading around $1,400 does not mean that it is “expensive.” Similarly, because Apple ($AAPL) is trading for $130 does not mean that it is “cheap.”

Tesla did their 5:1 stock split to appeal to novice, retail investors trying to take a swing at investing.

Tesla is not the only company to do such a split, Apple did the same thing this year. These companies are genius marketers that appeal to individuals who will buy without any conviction other than the stock’s name.

Confused About Tesla?

Before you buy a partial share of Tesla, while it’s hoovering all-time-highs, make sure you consider the catalysts that will keep it soaring. Stocks are not on the market to only go up; there is inherent risk in investing.

There are plenty of people who were skeptical of Tesla back at $200 (before the split!), so your guess is as good as ours…

Good luck!

*Curious about investing? Check out Tyler’s EBook HERE!

Mischievous Elon
Source: Cnet.com

Sources:

  1. Visual Capitalist. “Tesla’s Valuation Surpasses Ford and GM Combined
  2. Mashable. “2020 Wasn’t All Bad. Here are its EV Winners (and Losers)
  3. Car and Driver. “Report: Apple’s Electric Car is on Track for 2024 Production
  4. Quartz. “Why Tesla’s Inclusion in the S&P 500 Index Matters
  5. Wall Street Journal. “Tesla Stock Slides on First Day of Trading in S&P 500
  6. MarketWatch. “Tesla’s Biggest Bull Stampedes to a $7,000 Price Target

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1 thought on “Admiring Tesla From Afar”

  1. This was perfect analysis, Joe. I’m in the same boat and happy to watch Tesla from the sidelines. I do hope Tesla succeeds and helps create a sustainable future, but I can’t justify the 800 PE ratio. That’s a great point that Waymo and Apple have a lot more cash on hand to pursue ventures like electric vehicles. Keep up the great work!

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