Four Reasons Why Tesla Won’t Sink(Even If the Signs Say It Should)

Tesla’s stock price has fallen below $200 per share for the first time in seven months. Shock! Gasp! But the electric-car wunderkind is not collapsing, and while we do not pretend to be Car and Shareholder, we are deeply involved in the automotive industry and think it’s worth explaining what this development for the ultra-hyped company actually means.

Tesla is not reliant on oil prices

According to the Energy Information Administration, the per-barrel price of U.S.-grade crude oil dropped 42 percent this year from a high of $107.95 in June to $63.13 last week. You’ve seen and likely thoroughly enjoyed paying for sub-$3.00/gallon gas. But oil has nothing to do with Tesla’s earnings.

Tesla only builds high-speed luxury cars, none of which move for a penny under 71 grand. With options and go-faster gear, most Model S cars leave the factory closer to $100,000 and even higher in overseas markets like Norway, where the company ships the pieces and reassembles them to avoid heavier import duties. Model S customers, by and large, are not swayed by gas prices and already own at least one other gas-powered luxury car.

Unlike the Nissan Leaf and similarly affordable compact EVs, the Model S is both an indulgence and a prohibitively expensive social statement. This was true of both the Tesla Roadster and it will be, too, for the Model X. Tesla purchases are fueled entirely by passion and/or fashion, not by value or a desire to reduce one’s fuel costs.

Tesla largely isn’t viewed as an automaker

Among investors, Tesla has more in common with Twitter than it does Toyota. Tesla was born in Silicon Valley and that’s how the market continues to price it. The triple-digit stock price almost guarantees a roller-coaster ride for investors, and analysts readily admit that the price is based heavily on what Tesla says it will do in the future, not on its present performance.

Co-founder and CEO Elon Musk has a roughly 25 percent stake and started the company with nearly all of his own money. He won’t allow it to die. Between the hot product, a dearth of many true competitors, and anti-establishment leadership, Tesla — at least before it scales to hundreds of thousands of cars per year — continues to cash in on its outsider status.

Tesla is already overvalued

Since its IPO in July 2010 to right now, Tesla stock has risen 930 percent. Its market cap — the total value of all publicly issued shares — is nearly double that of Fiat-Chrysler and almost half of General Motors. This is an automaker that does not report monthly sales, is weirdly secretive of inventory levels, owns its own dealers, has an inordinate amount of its revenues tied in selling zero-emission vehicle credits, and has made a profit for exactly one quarter. Tesla shares sharply dropped below $180 in May following a relatively gloomy first-quarter filing and a junk credit rating, yet a quick look at this year’s stock chart shows both of those incidents were quickly put into the rearview mirror.

Analysts like Morgan Stanley’s Adam Jonas have almost singlehandedly bumped Tesla’s stock with each successive report, with one in February exclaiming how Tesla would be the leader of an autonomous “utopian society”. Thanks to these florid reports and Musk himself — who grabs more attention from a single tweet than Fiat-Chrysler can by parking Ferraris and Challengers on Wall Street all day long — this strategy works. For now, anyway.

Tesla remains a darling

Anyone with a 401(k) knows the stock market can be a bouncy, rough ride. Tesla investors know this, they’re used to it, and frankly, they don’t care. A stock correction is deserved. By no means should Tesla, strictly based on its reported assets and revenue, be as highly valued as it is. But customers adore Tesla. The company’s upcoming battery plant is supported by generous tax breaks from Nevada and heavy investment by Panasonic. Sales are rising and reaching more corners of the world. Until Tesla investors suddenly break rank, the company’s hot streak will continue at least into the mid-term, so long as Elon and friends can finally deliver the promised Model 3 sports sedan and long-delayed Model X crossover.