Tesla: Why investors at every level should consider owning a piece
Guest post on owning shares of Tesla (TSLA)
This guest post is written by a long time friend of mine; Ryan Koltalo. Individual stock selection isn’t my personal strategy, but strategically researching, buying and owning high quality individual stocks is definitely a proven option. You can learn more about Ryan at his podcast; Politics on the Prairies. Listen HERE
Stocks to keep an eye on during the Covid 19 market pull back
Scanning the sea of companies whose stock is trading at a fraction of their pre-corona strength, there is no doubt some are being undervalued. Not all of them though. Some may go lower still. The cruise industry for instance, led by luxury cruise line Carnival (CCL) may fold altogether.
So, what companies can we buy right now that – although currently taking a hit like everything else – aren’t depending on consumer foot traffic? In my opinion, that company is Tesla. If you don’t already own at least a few shares in this company, I hope to be the one who will convince you to have a look.
Note: I am not a financial advisor. Do your own research, make your own decisions and do not mistake this article for professional financial advice.
Investors should consider holding Tesla for three main reasons: the battery, the man, and the business.
The future of electric cars
When it comes to making an automobile move, the combustion engine has been the tried and true method for over 100 years. But it is not the only method, as electric vehicle (EV) manufacturers have proven time and again. The fact that Tesla has not only survived, but produced roadworthy vehicles for over ten years, should terrify automobile makers like Ford and GM.
Why? Because battery costs are decreasing exponentially. As technology improves, the cost of producing batteries decreases, and the retail price of EV’s decreases accordingly. Batteries accounted for approximately 50% of total EV cost in 2016. Combustion engines, on the other hand, keep getting more complicated and therefore more expensive to maintain.
Increasingly, we can’t fix our own cars, warranty won’t cover them, and the car is in a manufacturer-approved shop for repairs. For crying out loud, it’s a Dodge Neon, can’t Uncle Steve fix it? Nope. The digitally integrated combustion engine is the gift that keeps on giving. For the manufacturer that is
The Tesla advantage
Tesla vehicles don’t have this problem. That’s not too say you can take them anywhere or fix them yourself. There are just so few parts to maintain. Tesla’s EV’s have only 17 moving parts, compared to over 200 in a typical combustion engine vehicle. Hence the old saying, “More moving parts, means more opportunity for something to go wrong!” Additionally, many service issues can be resolved remotely, and software updates occur automatically while you sleep.
Now let’s consider battery cost. Let’s say you have a $30,000 USD retail Tesla EV. $15,000 of that cost is currently battery. Historically, battery technology has been advancing at a rate of approximately 8% per year with the cost of an EV battery pack dropping the same 8%. As battery cell technology continues to improve, production costs decrease and profits increase.
The equivalent $30,000 vehicle with a $10,000 combustion engine, might see that engine cost increase to $11, 000 next year, since more parts cost more money to produce. Constantly improving battery technology puts Tesla at an advantage in the near future.
How is Elon Musk so successful?
Next, is the man. Elon Musk is like a modern-day Tony Stark. He has a notable ability to raise heaps of money and turned both PayPal and Tesla into household names. Musk is the man behind SpaceX, which Musk considers a “hobby”, despite its success. He also started The Boring Company, a novel solution to traffic congestion. There’s Hyperloop and Solar City, side ventures that might constitute the life’s work of lesser men. Both now a part of Tesla adding to their legitimacy and viability.
Why is any of this important? Because these sorts of people are too often overlooked and underappreciated. Not to say Elon Musk isn’t super famous and well known. But he is mocked. Many people consider his targets ridiculous, his optimism naive, and his enthusiasm to make the world a better place a shallow popularity stunt. Despite his critics he continues to deliver. He’s ramping up EV production like he said he would. He’s re-using rockets like he said he would.
Tesla was one of the first manufacturers in the U.S. to convert manufacturing ventilators to help New York City hospitals meet needs during the coronavirus pandemic. This example of Musk putting human decency ahead of profit, is where I draw the Tony Stark analogy
Will Tesla join tech heavy weights in FAANG?
Musk is overlooked in the sense that one day we will suddenly find Tesla positioned in our lives in a fashion similar to Apple, Facebook, or Amazon. We have integrated these brands so completely into our lives that we forget Jeff Bezos was a computer geek with a start-up that bled capital for years. Now, he’s the richest man in the world with a service we consider essential.
Musk has a similar future ahead of him. He works an insane 80+ hours per week. His companies are cash rich while easily servicing manageable amounts of debt – something that cannot be said for many big automakers. Also, Musk believes in what he’s doing. He believes that EV’s are a better use of energy from a physics standpoint.
He believes that the world needs to address carbon emissions to combat human induced climate change. In the case of SpaceX, he genuinely believes he will colonize Mars and statistically, we should be surprised if he doesn’t make it happen!
What is the future of Tesla?
The final reason that you should buy TSLA is that it’s an incredibly fun business to own. Look up hedge fund manager Ron Barron and EFT manager Catherine Woods on YouTube. You’ll find projections of $5,000 US per share and beyond for TSLA, in as little as 5 years. Drivers are increasingly buying EV’s, oil prices are increasingly volatile, and Tesla is finally able to meet the price point required for the average consumer to consider one for their next vehicle.
When you look at the resiliency Tesla’s stock price has shown over the past 10 years, having rarely dropped lower than $200 per share. Recently peeking at $968.99 per share, I would say anywhere around $500 US for this share is a bargain.
I’m not a numbers guy. I wish I were, but there are only 25 hours in a day, and I try to play to my strengths. As long as a company is not swimming in debt, I look more to whether or not I like and understand the product or service. Tesla is an EV company, but it’s also a solar company and an autonomous driving software company. It also happens to be the leading player in all three fields. Tesla has land and factories – two large factories in the U.S., a third in China, and a fourth under construction in Germany.
Will Tesla stock continue to rise?
Tesla’s factory in China is particularly exciting. China has an increasingly obvious need to address air pollution, and mass proliferation of EV’s will undoubtedly improve the current situation. The survival of China and the growth of Tesla have become linked to some degree, in my opinion. The Chinese government will incentivize citizens to purchase Tesla vehicles and the country is in a position to provide financial support, should Tesla need it.
Tesla’s factory in Germany is also promising. Europeans are arguably more climate conscious than the Chinese and certainly more-so than Americans. It’s unlikely there will be a lack of demand in the Asian or European markets. All the better not to have to ship cars overseas, but instead build them on their destination continent.
With liquid cash, international government backing, serious production capacity, and ever-increasing consumer demand. It seems the path is clear for Tesla’s business model to surpass the stagnant combustion engine automakers.
Are Tesla cars dependable and performance driven?
If all of that is not enough to convince you that Tesla is great company, I’ll conclude by sharing that I’ve driven a model S and was blown away. As reported, the car is very quiet on the road. It accelerates so quickly from 0-60 mph that you can feel the G-force against your chest. We put our bags in the front trunk and the groceries in the back trunk and drove 215 kilometres to our cabin destination and plugged our hand-held adapter to the cabin’s wall outlet.
The car charged in thirty hours, at a rate of approximately 7/km per hour. We canoed, swam, and did cabin things without thinking about it at all. When it was time to leave, we unplugged and left on a full charge. Having spent under $4 in electricity for the round-trip ($0 on gas). This was over three years ago before the recent Model Y and Model 3. Things have only gotten better, smoother, and faster.
So, this is my take on Tesla: A brick and mortar business, led by a visionary, with a range of products destined to change not only the market, but the world itself.
“Trunk in the front like that shit Dumbo” – Post Malone
Oh, and they make sweet cars.