Tesla stock surged 20% on yet another quarter of huge earnings and posting a surprise profit of $342 million (versus expected losses of $256.9 million). This just goes to show how media narratives are often wrong. Everyone for the past 2 years has been saying Tesla is dying due to losses and Elon Musk’s supposed “erratic behavior” (that is what the media labels you if you are successful but fail to comply with what they deem to be conventional social etiquette ), yet Tesla has consistently shown an ability to prove naysayers wrong.
For years, as far back as 2013 when I started covering Tesla, I have been saying that:
-Tesla stock would go higher
-That Tesla is NOT at risk of Bankruptcy despite losing money. If Tesla were truly in dire straits as the media insists it is, the stock price would reflect that (single digits or low double-digits instead of $200-300/share) and Tesla would not be able to raise money on such favorable terms. The media is effectively implying that they are privy to some sort of insider knowledge to Tesla’s ‘true’ financial health that hundreds of analysts and thousands of market participants, who have billions of dollars on the line, are oblivious to. Now that is possible, such as famously in the case of Enron, but this is very improbable.
As of 8/24/2018, Tesla stock is at $320/share, which is close to its all-time high and indicative of confidence in the future of Tesla in spite of Tesla losing money. If market participants were actually concerned about insolvency, the share price would be $3, not $300. So is ‘Thorfinnsson’ smarter than the wisdom of the crowds? I don’t think so. All he has is accesses to information that is available to the public and therefore factored into the present stock price. Wall St. is well aware that Tesla is losing money, but there is more than meets the eye here, which explains why the stock is not at $3.
-That the losses are due to one-time cap-ex expenses, which is NOT the same as recurring losses due to business operations/ Excluding such expenses, Tesla is profitable, and Tesla’s car business is cash-flow positive, with profit margins of 20%, versus single-digit margins for Ford and GM (this subtlety is often lost by the media and Tesla doomers).
Tesla generates tons of cash flow from business operations, similar to Amazon despite large one-time losses. This is analogous to opening a Subway or McDonald’s franchise and initially taking on a lot of debt, but the business of selling burgers is profitable. Analogous to a flipping a light switch, as soon as Tesla stops spending on cap-ex for expansion, Tesla will instantly go from losing a lot of money each quarter to making a lot of profit.
-Tesla can raise capital very cheaply and there is huge demand for Tesla debt. In May 2019, Tesla did a secondary offering and the stock actually went up despite diluting itself. This is tantamount to investors paying Tesla to spend money. That is unprecedented and demonstrative of the optimism surrounding Tesla. Tesla is possibly the only company in existence that gains value when it takes on debt. Just goes to show how media keeps being wrong about Tesla running out money being a concern. In theory Tesla can raise as much money as it needs and the stock price won’t go down.
-Elon Musk generates free PR for Tesla. Ford, Chrysler, and GM need to spend billions of dollars on adverting a year to make people aware their new models exist, let alone want to buy them. Tesla gets free PR through its spokesperson and CEO , Elon Musk, and his Twitter account and its captive audience of millions of followers, which is way better than some crappy, million-dollar TV ad that 99.999% of viewers will fast-forward, forget, or ignore. And then the media is glued to Musk’s twitter account, so anything Musk tweets out is amplified, all for free.
Now admittedly, my first prediction, that Tesla stock would go a lot higher, hasn’t quite panned out as I had hoped. Despite Tesla being up 20% today. it is still around the same price it was in 2015-2017. Tesla stock has considerable volatility and has a tendency of making 20-30% swings in a matter of weeks or months. But I think at some point, due to a combination of strong fundamentals , short covering, and euphoric optimism, Tesla stock will inexplicably and without warning break-out to $500, and then eventually $1000/share within 5 years, just like how in 2013 it broke-out from $30-40 to $100-200 in a matter of weeks. It’s gonna be, to quote Trump, Yuuuuge!
Elon Musk’s star is brighter and bigger than ever. (Astronomy nerds will correctly note that big, luminous stars also tend to die the fastest, but this will not apply to Musk, who I think has considerable staying power and will be massively wealthy and influential for decades to come, much like Bill Gates but even more so.) The media, both his fans and detractors cannot get enough of him. This news of Tesla stock being up 20% is making headlines all over the world. It is in every major paper and on TV. Traders from all over the world, from the Bay Area, new York, Hong Kong, South Korea, all the way to the major cities of China, have their eyes glued to their monitors to see Tesla’s stratospheric rise and to read latest developments. Option traders on /r/WallStreetBets are making fortunes with Tesla call options, with some traders turning a few thousand dollars into tens or even hundreds of of thousands of dollars overnight.
Musk and Trump are the duo of conservatory, media intrigue,and embodiment of America’s wealth creation and results-orientated culture. Millennials and gen-z are drawn to Musk because he embodies individualism, results, and pragmatism over ideology, conformity, and moralizing. He’s an exemplar of the the type of person many young people aspire to be: someone who is wealthy and formidably smart, and, like Trump, is his ‘own’ man and does not kowtow to the media or any establishment. Now compare Musk to bumbling, dumb, barely-articulate Lebron, who is subservient to China. Now, yes, Musk, like Lebron, also likes China, but the difference is Musk is smarter and his loyalty to China is motivated by business interests and admiration for the Chinese people and culture, not because of some organization such as the NBA or the Chinese government telling him what to say and think.