Tesla Roadster Sport 2.5 (Wikipedia)
One of the hottest, if not the hottest, stock stories in the market today has been
Tesla’s approach to the electric automobile is a stark contrast to the efforts of other automobile companies that have essentially reduced the electric car concept to one of ugly utilitarianism while failing to address the broader issues of infrastructure and a sound technological platform that are necessary for the longer-term success of electric car industry.
Tesla’s vision in building the infrastructure necessary to provide ready re-charging locations for their cars in the form of their innovative “Supercharger” stations that utilize electricity from solar panels made by another Elon Musk company, Solar City (SCTY) while providing free charging for life for owners of Tesla products is something sorely lacking in the efforts and vision of other electric vehicle manufacturers.
In addition, Tesla has shunned the ugly, utilitarian boxes that characterize the design of most electric vehicles and instead has emphasized a compelling product that is both well-made and luxuriously designed, as attested to by Consumer Reports rewarding its Model S with its highest rating ever for an automobile.
Meanwhile, Tesla is creating a technological platform for electric vehicle technology by allowing it to be used by other electric vehicle manufacturers such as Mercedes-Benz, which is used in its B-Class electric drive vehicle, and Toyota, which is using it in the Rav4 EV model. Similarly, in 1915, General Motors’ introduction of the powerful production V-8 engine took the nascent U.S. automobile industry as it brought performance into the equation as a way of appealing to consumer desire for something that was beyond the utilitarian, mass-production models of Ford Motor Company.
GM came public in 1911, and essentially moved sideways for about two-and-a-half years before breaking out at around the $34 price level and launching above $80 in a few short weeks in early 1914. This initial move is similar to TSLA’s breakout from $40 to over $100 in a few short weeks. General Motors in 1914 then went sideways for nine months, including four months during which the market was closed due to American involvement in World War I, before it launched on a 471% upside move over the next 39 weeks.
Tesla’s recent price move is similar to GM’s move in 1914, but for GM that move from 34 to over 80 in 1914 was just the beginning, because the real move began in 1915 from that price point. Even though GM had more than doubled in price in 1914, the move that ensued in 1915 went up nearly four more times from there. History is rife with companies with cutting edge technologies and first mover advantage that could execute their vision ahead of the competition. While they often carried high P/E ratios, their sharp initial price rises were just the beginning of explosive multi-month or even multi-year moves.
The point for investors is that one can draw parallels between the game-changing developments that General Motors brought to the nascent internal combustion-engine-centric automobile industry of its day back in 1914-1915 and the innovative path taken by Tesla Motors as it brings its own game-changing developments to the nascent electric vehicle industry. Thus we can develop some sense of the possibilities that lie ahead for a company in Tesla’s position within an emerging industry and its potential for further price gains.
If one similarly viewed GM in 1914 as being “overdone” when it rallied from $34 to over $80 in several weeks, they would have been selling the stock short, figuratively speaking, and would not have been open to the subsequent price move that began in March of 1915.
Today, many traders want to sell TSLA short, literally, but we would argue that investors should not underestimate the company and the stock’s future potential. Like GM in 1914, Tesla's initial rocket launch from a two and a half year consolidation may not be all that is left in the stock. Therefore, the proposition, as we see it, is simple: if Tesla’s recent price move is more than just a massive short squeeze, the stock will demonstrate this by building a sideways consolidation, or a “base” as we like to refer to it, for a period of time as it digests it previous sharp price run-up and also gives the developing fundamentals time to catch up to the stock price.
For this, we needn’t speculate as to whether the stock is “overvalued” or that Tesla Motors is merely a “flash in the pan” in the auto industry - the stock price will tell us by building a proper base and consolidation and then breaking out again, just as General Motors did in March of 1915 after its initial sharp run-up in the early part of 1914 from $34 to over $80 a share. And that is all that investors need to watch for now that Tesla has had its own initial price run-up that took the stock from about $40 to $114.90 a share in a short nine weeks.
What the GM example tells us is that maybe there will be more to this price move in TSLA than currently meets the eye, and investors should remain open to whatever the stock's future price and volume action tells us and not rely on simple-minded valuation analysis that can often cause investors to miss huge stock market opportunities. Just ask all those hapless investors who shorted TSLA below $40.
