Tesla: Powered by Sustainable Optimism

Jacob Harper  |

Tesla (TSLA) won’t run out of gas. Tesla won’t hit the brakes. Tesla is supercharged and electric and all sorts of snazzy synonyms for “exciting.” However you put it, investors are wildly enthused about Tesla again, and the market is responding accordingly.

After experiencing a dip in value in May, shares have revved up the charts. There’s not a reason for the stock rise besides more of the same old story: a general feeling that Tesla is the wave of the future.

On the surface, hype seems like an incredibly unsustainable resource with which to fuel a stock pop. But even more than similarly “overvalued” Amazon (AMZN) , Tesla seems fully capable of using infrastructure building, hype, and overall general goodwill to power their stock for some time to come.

Or at least, they do in the eyes of average, non Wall Street-insider traders. The question is, how did Tesla become so damned popular, and is that popularity a sustainable resource?

Tesla: an “Emblematic Force”

From June 15 to June 20, shares of Tesla climbed more than 10 percent. On June 23 that run continued, with Tesla’s stock gaining 3.53 percent and flirting with $240 a share, just under its all-time high closing price of $246.

The reasons, as they often are with Tesla, are intangible. To be sure, there was the June 20 major vote of confidence from Morgan Stanley (MS) , who wrote a note to investors concerning the electric car maker that read like a lover’s ode.    

Calling the company “the most important car company in the world,” Morgan Stanley considers Tesla the only true innovator in car manufacturing, the most special car company in the whole wide world. To them, the car maker is a catalyst that has changed, and Tesla will continue to change the entire automotive industry for the foreseeable future, and for the better.

Intangibles or no, that kind of praise is powerful enough to power very tangible gains for quite some time.

Charismatic Leader + Populism = Revolution!

As usual, the praise concerning Tesla is not focused on fundamentals, but on promise. But not just any kind of promise. The promise of revolution.

And all revolutions have a leader. In this case, it’s charismatic Steve Jobs visionary stand-in in Elon Musk, a wealthy Tony Stark-esque industrialist who works all the sexy angles of the sexy green energy industry.

In solar, there’s heavy competition. First Solar (FSLR) and Canadian Solar (CSIQ) challenge the Musk-chaired Solar City (SCTY) , to name a few. In electric cars, though, it’s a different story. Tesla is the unquestioned leader in the fully-electric car trend, with offering s by the Big Three American automakers and their overseas counterparts consistently lagging behind.

Then Tesla tinkers with everything a bit more, because why not? Riding on the open-source road, they went ahead and shared their plans for their automobiles with the public. Want to go ahead and make a Tesla? Here’s the plans, now clear out a space in your garage and get to it.

It was largely a symbolic gesture. Who’s going to actually build a Tesla? But it was a brilliant PR move, making themselves out to be the people’s champ while losing little in the terms of the nuts n’ bolts value they’ve so carefully accumulated.

Average Americans Don’t Normally Invest, But When They Do…

According to a 2014 Gallup poll, 50 percent of the US still thinks investing in the stock market is a “bad idea.” But the retail investors that do tend to invest in Tesla.

According to popular retail investor hub Ameritrade, in 2013 Tesla was the fourth most popular stock on the entire market, trailing only Apple Inc. (AAPL) , Facebook (FB) and the S&P 500 ETF (SPY) . Keep in mind that Facebook and Apple are magnitudes larger than Tesla, and the S&P 500 has been a safe bet for investors since Elon Musk was just a glimmer in his pappy’s eye.

Facebook and Apple tend to make money commensurate with their value. Tesla, while not a money hole, certainly does not.

To be sure, they do make money. They surpass revenue projections. They repay government loans years before they’ve matured. They actually turn a profit, like participants in capitalism should ideally do at some point.

Although it merits mentioning they have only turned a profit once, Q1 2013. That historical lack of profitability is major ammunition for Tesla’s critics.  

Look Out for the Bears!

Tesla also trades at a profit-to-earnings ratio around 132, and carries a short float, or percentage of people betting against the company, of 26.58 percent. Both numbers raise red flags for investors trained to spot overhyped stocks.

The last analyst to change their coverage on Tesla, Deutsche Bank, lowered their rating of the company to “hold.” While slipping into neutral might not look on the surface to be the worst thing for a stock, it is important to keep in mind that the majority of stocks merit at least a “buy” rating from analysts.

And that Morgan Stanley analyst, Adam Jonas, who wrote the recent paean to Tesla? To a Tesla bear, this is just more cheerleading with no new substance. In February Jonas wrote that Tesla was at “pole position” in the market while literally doubling their price target top $320 a share. To a Tesla bear, this kind of effusive, relentless, metaphor-laden praise does little to bolster the retail investor bull’s case.

And that retail investor popularity? While 2014 isn’t done, that popularity might be sinking. While Tesla still sports impressive volume, the number of shares traded is sinking. Average volume in May 2014 was less than half of what it was in the same month the year prior.

But in June that volume has started to creep up again, partly spurred by the Morgan Stanley report, but mainly by the wave of investors goodwill suddenly once again favoring Tesla’s promises over their shortcomings.

Whether Tesla is a buy or not just matters if you think they can build infrastructure, like gigafactories and charging stations, and innovate and surprise ad infinitum without necessarily realizing profits commensurate with their value.  If this seems like a farce, keep in mind a company like Amazon who seem to be able to power their value from the same source.

While Tesla’s price will surely get checked in the future, for the time being their popularity, and in turn their $29.47 billion value, appears to be wholly sustainable.


Stock price data is provided by IEX Cloud on a 15-minute delayed basis. Chart price data is provided by TradingView on a 15-minute delayed basis.

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