I’m long Tesla ($TSLA) at $218.00. In this post I’m going to lay out exactly when I plan on adding to my position and what I think about the company’s future (pictured is a hint).
Position:
When I went long this January, I told myself (and Tweeted) that I wasn’t going to revisit the stock until July 1, 2016. Setting disciplines for a stock like TSLA is necessary, because a lot of people have made their money either A) long the stock, or B) flawlessly executing trades in the stock. If you don’t really know what you are doing, and aren’t nimble enough, the price action in this stock will eat you alive. Since I planned on holding my position for an entire year regardless, I knew I would be in for some pain. Tesla is a stock that can swing violently in either direction, just as we have seen recently. Sometimes I consider selling the stock and buy back in lower, but that strategy is often a mistake. Remember, things don’t always go exactly as planned, especially not in the stock market.
Now that my position is down 25% (halfway to 50%!), I’ve decided to go back and rework my long thesis. I’m seeing prices right now that I think will be a steal in a few years. I have yet to jump into the dip, however. I’ve decided that I will most likely add to my position after their earnings report next Wednesday. I have a feeling that the stock will indeed get hit after the release. If my loss goes down to 30% or lower, I’ll add to my position. If it goes down to 30% before the release, I still won’t add to it. I’m fine having a smaller position going into earnings and missing a pop instead of taking an even bigger loss on an increased position. As I already stated, I’m not cutting TSLA go from my portfolio unless things REALLY hit the fan at the company, but I’ll go more into that in the next section.
Tesla’s Future
I am very openly critical of analysts who are overly bullish on a company’s prospect, such as Bob Peck from SunTrust, with his mindless pumping of Twitter and Yahoo!. Tesla has a very special “analyst” whose commentary had violently shifted the way the market prices Tesla. Adam Jonas from Morgan Stanley isn’t really a typical analyst for the company, he actually be came an activist that people took seriously. An “activyst”, if you will. Someone with no pull or insight into the company came along with the highest price target on the Street and some innovative ideas the company should pursue in the future. After Jonas released his $465 price target (soon cut to $450) and began talking about how Tesla would definitely begin taking market share from other autos by offering ride-sharing. That sounds really great, and the company has since discussed these possibilities well after he proposed the idea out of thin air.
There are glaring holes in his idea and how it would be bullish for Tesla:
- No matter how you slice it, it would mean less Tesla cars on the road
- He ignores that other companies have driver-less capabilities in the works
After his price target came out, other analysts followed suit. Don’t want to be left out, right? Price targets from companies were being raised by nearly every firm after Jonas’ lead. The problem is… Jonas recently cut his target down to a (still whopping) $333. More “followers” will follow suit.
So why am I bullish after talking all of that trash on the bull-master’s [full of bull] thesis? Quite simple: I don’t really care about their car business. Do I think about owning a Model III when it comes out? Sure do. Does a Model III make me want to own the stock? We’ll have to see what it looks like when it’s revealed in March. Obviously analysts thought much too highly of the Model X, even after the company repeatedly, over and over, bashed them over the head saying they were having troubles manufacturing it. Model X won’t [positively] impact the stock until the out-years when suppliers of parts become more reliable so they can actually ramp production.
In my opinion, Tesla should be two separate companies.
Tesla Energy, the battery business, theoretically should be able to stand alone and do well as a separate entity. Honestly, I’m not interested in owning American automakers (this includes Tesla!). The Gigafactory, and the Gigafactories to follow, motivates me to own the stock. I was awake and live-tweeting the Powerwall event, and upon reading the press release one major thing stuck out to me: The words business and utility. Sure, the Powerwall is something nice for homeowners who have solar panels installed onto their homes, but that’s not all Tesla will be producing with their plants. Tesla will be using their Gigafactories, the largest lithium-ion battery manufacturing plants in the world, to produce batteries not only large enough to power cars, but also to store energy for businesses and for utility companies. Tesla Energy is the real “moat” story here.
Tesla is hopefully already making deals to produce batteries for their electric car competition. As backwards as it may sound, Tesla’s mission is to bring every other company up to their level to produce massive-scale electric transportation. Tesla probably understands that they are going to have strong competition within just a few years in the car space, and that’s what they want. If Tesla Energy was it’s own business, it would begin making sustainable income by selling batteries to Tesla as well as GM, Audi, Alphabet, and whoever else. Who else will they go to? Most companies will have domestic access to the top-quality power source, and other plants could be produced in other continents as well.
Businesses should embrace the Powerpack to store energy generated from alternative energy sources. Even though the solar companies (and wind companies, too) have been beaten up in the market, they are still out in the world installing panels and turbines. As mentioned in the press release, Amazon and Target had already agreed to install the Powerpack. Other large-scale businesses that have warehouse operations should also invest in the Powerpack. This includes datacenters, Wal-Marts and club stores, auto plants, you name it. It simply makes too much sense for not only America, but for the world, to upgrade to renewable energy sources and away from commodities.
Speaking of the world, this brings me to utilities. Tesla Energy has a real opportunity in the emerging markets they need to capitalize on, especially if they want to work towards the greater-good. There are many countries in the emerging markets that have no electricity, or what they do have consists of very primitive systems. Tesla Energy, along with the solar and wind companies, can begin installing modern-day energy systems right away in these countries, helping them skip forward to perhaps a century’s worth of innovation. Obviously, Tesla Energy can start selling the Powerpack to other utility companies we are familiar with but I believe it would do them the best to start where it doesn’t take as much convincing to communities, businesses, and governments to get things done.
That pretty much sums up my bull thesis on Tesla. If Adam Jonas is allowed to create pie-in-the-sky ideals for Tesla, then I certainly can too. At least mine actually make money for the company, not lose it.
