Tesla Motors (TSLA)
By Timothy Lutts, Chief Analyst, Cabot Stock of the Week
From Cabot Wealth Advisory 9/26/16 Sign up for Cabot Wealth Advisory—it’s free!
Tesla (TSLA) has—and will maintain— a firm grasp on the premium end of the electric car market, thanks to both its pricing and its style, and is unlikely to relinquish it easily.
For buyers looking for style, The Tesla Model 3 wins.
For buyers looking for long-distance travel capability, the Tesla Model 3 wins.
For buyers looking for a self-driving car, the Tesla Model 3 wins.
For buyers looking for more cargo capacity, the Tesla Model 3 wins.
For buyers looking for the ultimate in safety, the Tesla Model 3 wins.
And for buyers looking to bypass the ordeal of haggling with a traditional auto dealer, the Tesla Model 3 wins.
Bottom line: in the end, everyone wins—except the oil companies.
What about the stock?
If Tesla ever begins to cut back on development and innovation costs, earnings will soar.
But, to get the full answer, you need to become a regular reader of my Cabot Stock of the Week. Then, every Tuesday, I’ll send you a brief but clear recommendation of the one Cabot stock previously recommended by another Cabot analysts that I think is best to buy today, plus updates on all previous recommendations still in the portfolio.
So don’t delay. Join my happy readers while this bull market is running! For details, click here.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 4/11/16 Sign up for Cabot Wealth Advisory—it’s free!
In the 10 days since Tesla Motors (TSLA) unveiled the prototype of its Model 3 sedan, more than 325,000 people around the globe have put down $1,000 deposits for the car.
That’s more than $325 million in Tesla’s coffers, which the company gets to keep for more than a year; deliveries of the $35,000 four-door sedan won’t begin until late next year.
And if every reservation-holder eventually pays $35,000 for the car, that’s $11.4 billion.
What does this mean?
It means that demand is high for an affordable car that:
• Seats five adults
• Goes more than 200 miles on a single charge
• Eliminates the need to stop at gas stations
• Has partial self-driving capability (for an extra fee)
• Has access to Tesla’s network of superchargers (for an extra fee)
• Provides the kind of driving performance (cornering and acceleration) previously limited to expensive and complicated sports cars.
• And can be bought online for a fixed price, allowing you to avoid the oft-dreaded experience of dealing with a car salesperson.
And what does this mean for the automobile industry?
It means the revolution is under way, and that Tesla Motors is truly in the leadership position.
Now, as long-time readers know, I’ve been driving a Tesla Model S for years. Mine was delivered September 14, 2013 (a date I remember just as I remember my three children’s birthdays) and now has more than 33,000 miles on it.
And I’ve been recommending TSLA as an investment even longer. Readers of my Cabot Stock of the Month who bought when I originally recommended the stock back in December 2011 are now sitting on profits of more than 800%.
In short, I’ve been following this story a long time, as both an owner and investor, and I feel fairly well informed about the big picture.
And the big picture is this: There are a ton of changes coming to the automobile business, which collectively will create some new winners, while killing some of the companies in the business today.
The Next Automobile Revolution
These changes start with Tesla’s well-regarded electric powertrain, but they go far further.
The Rise of Autonomous Driving. Today’s Teslas include Autopilot, which works great for both highway and stop-and-go traffic, and both Google (GOOG) and Apple (AAPL) are working on self-driving cars. In the long run, this progress should sharply reduce the number of people killed in auto accidents each year (roughly 34,000 in the U.S.!).
The Rise of Car Sharing and Ride Sharing. Zipcar, Uber and Lyft are the big names here, but there are others. One of the surprising participants is General Motors (GM), which invested $500 million in Lyft recently, and in Chicago is supplying vehicles to Lyft driver wannabes who don’t own their own vehicles.
The Overhauling of the Automobile Dealership Industry. According to a recent Gallup poll, the only people less trusted than automobile salespeople are telemarketers, Congressmen and lobbyists. By selling directly to consumers—and making them very happy—Tesla Motors has shown that these salespeople add no value. If they don’t change—Poof!
The Slow Implosion of the Gas Station Industry. As fewer and fewer cars burn gasoline, look for more roadside locations to be repurposed into other uses.
This revolution will bring wonderful benefits in the years ahead that should make automobile travel both more efficient and safer, and I’m fairly confident that Tesla Motors will be one of the winners. Click here for more information.
From Cabot Wealth Advisory 12/21/15 Sign up for Cabot Wealth Advisory—it’s free!
Longtime readers will remember that Tesla Motors (TSLA) was one of the market’s top performers back in 2013, zooming to gains of 344% as the company’s Model S sedan earned rave reviews.
Readers of my own advisory, Cabot Stock of the Month, know that since we bought the stock late in 2011—and haven’t sold yet—we’re sitting on gains of 692%.
But the stock has spent much of the past two years building a basing pattern, digesting that advance.
And now more and more companies are building electric cars!
So I thought I’d take some time today to review the competition, to see if Tesla, whose base model costs $75,000 and has a range of 240 miles, has anything to worry about on the competitive front.
For the record, I’m only considering pure electric vehicles here, which plug in to recharge. There are tons of hybrids out there, including the very popular Toyota Prius and the Chevy Volt, but those cars lack the simplicity of operation and maintenance that make electric cars so wonderful.
Tesla Competitors Today
Nissan Leaf – $29,010
Range: 84 miles
The Leaf is the world’s most popular electric car, with more than 200,000 vehicles sold worldwide since its debut five years ago. And now, the new 2016 model offers the option of a larger battery (starting at $34,200) that provides 107 miles of range. The Leaf looks a bit odd, with its bug-eye headlights that improve aerodynamics and a panel on the nose where you plug in, but its battery is located in the car’s floor, where its weight improves stability and handling, and its sales record proves Nissan knows what it’s doing.
Volkswagen e-Golf — $36,300
Range: 83 miles
The original Golf is one of the most popular cars in the world, and despite being nearly 400 pounds heavier than a gasoline-powered Golf, the electric version retains the brand’s responsive handling characteristics—which means it’s the best-handling of the “affordable” electric cars. Unusually, the e-Golf has an engine noise simulator so pedestrians can hear the car coming. And the car is only available in the 10 Zero Emission Vehicle (ZEV) states: California, Oregon, Maryland, New Jersey, New York, Connecticut, Rhode Island, Massachusetts, Vermont and Maine, plus Washington, D.C.
Ford Focus Electric – $29,200
Range: 76 miles
Like the e-Golf, the Focus Electric is an existing model converted for pure electric, so it’s almost indistinguishable from the original. One drawback, however, is that the batteries take up some 40% of the car’s original trunk space. And, like the e-Golf, the car is not widely available; fewer than 5,000 have been sold since the car debuted four years ago. In industry jargon, these are “compliance” cars, sold to meet some legal requirement and not a serious effort to make money or gain market share.
Mercedes B-Class Electric – $42,400
Range: 82 miles
The smallest car available from Mercedes offers the luxury expected from the brand with a price to match. It has five real seats. Its powertrain is supplied by Tesla—though Mercedes has programmed the drive unit for comfort and efficiency rather than performance. Its battery is in the proper place (under the floor). And it’s available in all 50 states.
BMW i3 — $43,300
Range: 81 miles
The other high-priced contender comes from BMW, which apparently gave its designers free rein to create something that looked different. And they did; the i3 is short, tall and wide, with a space-age interior. So if you’re shopping in this price range, you can go conservative (Mercedes) or noticeably-different. Furthermore, because it’s built with aluminum and carbon fiber, the i3 is also the lightest mass market EV on the market. It’s a fun and fast car.
Chevrolet Spark EV — $26,000
Range: 82 miles
The tiny but fun Chevy Spark was a compliance car originally sold in California, Oregon and Maryland. But sales boomed earlier this year when Chevy cut the price (lease at $139 a month, no money down) and began advertising, and people discovered how much fun the car was to drive. Reportedly, Chevy’s experience marketing the Spark will pave the way for its launch of the mass market Bolt (see below).
Fiat 500e — $32,600
Range: 87 miles
Perhaps the cutest car of the bunch, and nearly as fun to drive in the city as the Chevy Spark, the Fiat 500e is only available in California and select ZEV states. Pity.
Kia Soul EV — $34,500
Range: 93 miles
With a mid-range price and better-than-average space and driving range, the Kia Soul is a good value, especially if you like the car’s style. It’s available in 10 states: California, Oregon, Washington, Georgia, Texas, Hawaii, New York, New Jersey, Connecticut and Maryland.
Smart Electric Drive – $25,750
Range: 68 miles
It seats only two people, but it’s available with a convertible top and you can park it almost anywhere. Just don’t plan on doing much highway driving. This is a city car, and it’s only available in California, Massachusetts, Maryland, Maine, New Jersey, Oregon and Rhode Island.
Mitsubishi i-MiEV – $23,800
Range: 62 miles
Its low price is probably its biggest attraction, unless you like the odd look and the odd name. The range speaks for itself.
Clearly, none of these is remotely “competitive” with the Tesla Model S. But there are new competitors on the way!
Tesla Competitors on the Way
Chevrolet Bolt – $37,500
With a target range of 200 miles, the Bolt could be a huge seller, but it doesn’t exist yet. An unveiling is scheduled for the Consumer Electronics Show in January, and actual sales may start in late 2016, with supply reaching all 50 states within a year.
Faraday Future — $?????
With four Tesla veterans on its leadership team, a work force of 400, and plans to hit 500 by year-end, Los Angeles-based Faraday Future is aiming to build a car that’s even better than the Tesla Model S—better meaning 15% more power, more digital bells-and-whistles (aromatherapy?), and a revenue structure that’s closer to that of a smartphone. The sources of money behind Faraday Future remain a mystery, but the company expects to unveil a concept car on January 4 in advance of the Consumer Electronics Show, and says it will manufacture in North Las Vegas. Good luck to them!
NextEV — $?????
Founded by the chairman of Chinese automobile portal Bitauto.com and backed by other Chinese technology leaders, NextEV came out of stealth mode just last week after raising $500 million of the $1 billion it’s looking for to build a U.S. factory to manufacture a Tesla challenger. There are lots of unknowns here, but the fact that Padmasree Warrior, ex-CTO of Cisco, is its U.S. CEO and chief software officer, is a plus. Good luck to them, too!
Summing up, while the current crop of electric cars pose little competition to Tesla, three coming down the pike might. In the meantime, Tesla continues to gain experience and cultivate brand loyalty.
Furthermore, Tesla has a huge asset in its Supercharger network (there are currently 563 stations with 3,227 chargers), which allows users to recharge fast, for free, on road trips.
While those little city-based electric vehicles don’t take many road trips, the three vehicles that are on the horizon will be designed to. But how will they charge? To date, there’s been no indication yet that Tesla is ready to share its charging infrastructure. If it doesn’t, these competitors may struggle, and if it does (for a price), Tesla could see a great new revenue stream. In any case, the future will be very interesting!
And then there’s Tesla’s gigafactory in Sparks, Nevada, which will manufacture batteries more efficiently than ever before and allow Tesla to drive down its costs significantly. Having access to the lowest-cost batteries will be a terrific advantage for Tesla in the future.
Another issue of the near future is autonomous driving. Today’s Teslas already have Autopilot, which avoids collisions and keeps the vehicle in its lane. Google has lots of little cars that truly drive themselves, though you can’t buy them. And Apple is working on car technology too.
And then there’s the movement toward not owning a car at all! Zipcar is in the vanguard of the car-sharing movement, while Uber leads in the ride-providing movement, and there’s little doubt that Uber’s impact on the world of transportation has only just begun.
Put it all together, and you get a very bright future, full of innovation and disruption, and from where I stand, the prospects for Tesla are still very bright.
Tesla (TSLA): A Winning Marketing Strategy
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 9/29/14 Sign up for Cabot wealth Advisory—it’s free!
Here are a few words on Tesla Motors (TSLA), which was one of the market’s top glamour stocks earlier this year.
The company continues to make great progress on all fronts.
It will build its Gigafactory on a huge site east of Reno, Nevada, with major support from Panasonic and assistance from others, including the state of Nevada.
It will roll out the Model X SUV next year, probably in the second quarter.
And it will continue to make progress toward its major goal, which is to accelerate the demise of the internal combustion vehicle industry.
But it’s important not to confuse the company with the stock.
The stock fell to its 50-day moving average on heavy volume a week ago, and now it needs a rest. If you’re holding a good profit in the stock (and maybe you sold some a month ago when I recommended it), I think you can sit comfortably, with your eye on the long-term prize.
But if you’re not on board, there’s no rush. Wait for a better entry point in a more constructive market.
And if you’ve actually got a loss in the stock—meaning you were rather late to the party—I suggest you sell and move on. TSLA may build a bottom here, but it’s also possible that it falls to its 200-day moving average, which is now down near 215. And you wouldn’t like that.
Remember, the goal of investing is not to make money in any one particular stock; the goal is to identify the best opportunities, with the best risk-reward ratios, and then work on those opportunities. Today, the opportunities are rather sparse, and I believe you’ll find much better risk-reward ratios when the news is worse and investors are more afraid.
And how do you identify that point?
One way is to keep reading Cabot Wealth Advisories, but even better is to become a regular reader of Mike Cintolo’s Cabot Market Letter, which for 44 years had been practicing market timing with great success. For details, click here.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 11/25/13 Sign up for Cabot Wealth Advisory--it's free!
Tesla – The Company
Tesla had become high profile because its Model S was named Automobile of the Year by Automobile Magazine.
It had become high profile because the Model S was named Car of the Year by Car and Driver.
It had become high profile because the Model S earned the highest score ever from the sober analysts at Consumer Reports.
And it had become high profile because its stock went to the moon over the summer and early fall.
Also, it stayed high profile because the Model S just received the highest owner satisfaction score from Consumer Reports.
But most people don't trust the cars today, because they use an unfamiliar (unproven) technology—and that's a typical human reaction to anything new.
And that explains the attitude of my recent correspondent, an industry expert who has no confidence in electric cars—especially by this new manufacturer—and wants me to be very careful about waiting until all the evidence is in before making judgments.
Well, the trouble is, waiting until all the evidence is in is smart in his business, but it doesn’t work in mine!
TSLA – The Stock
When I recommended TSLA stock to the readers of Cabot Stock of the Month back in December 2011, the only Tesla cars on the street were the two-seat Roadsters; the company had sold about 2,000 of the little sports cars worldwide. But it was developing the Model S, promising to begin deliveries in mid-2012. It had about 6,000 deposits for the big car. And beyond that was the promise of an all-electric mass-market car—that’s still a very attractive part of the story that many people don’t even know about.
In short, many people knew nothing about the company, and among those that did, there was substantial uncertainty about Tesla’s ability to survive; any operating profits looked at least a year away
But the stock was acting well! Here’s the chart I published at the time.
And here’s what I wrote:
“Tesla came public in June 2010 at 17, and peaked at 36 that November, before retreating to a low of 21 in February of this year. The big market selloff this August pulled it down to 21 again, establishing a double bottom. It pushed up to 35 in November and December, but selling pressures (sparked by a negative Morgan Stanley opinion on electric cars in general) pushed it down to touch 26 last week … and that leaves it sitting right on its 200-day moving average, which we view as a buying opportunity.”
What Tesla had, therefore, were the three main attributes of a great growth investment.
1. The company had a revolutionary product that could eventually serve a mass market and thus it had enormous growth potential.
2. The company was not well-loved; it was not even well-known.
3. And the stock was in an uptrend, revealing that investors as a whole were accumulating the stock because they were developing more positive perceptions of the company.
Combined, these factors meant the stock had terrific upside potential, and would likely climb higher as more and more people learned about the company and more and more investors developed positive opinions about the company’s future.
Throughout 2012, the news about Tesla slowly got better, and the stock brought a little profit to my readers.
The Model S was introduced, and received the rave reviews mentioned above. But that didn’t do a lot for the stock.
But it wasn’t until April 1, 2013, when Tesla announced that it expected to report a first-quarter profit, that the stock really got going.
And it wasn’t until a month later, when the actual results came out, that buyers began to stampede into the stock on big volume and gapped the stock up from 56 to 70.
Now, some people would see that burst and take profits, figuring the stock was due for a retreat. But at Cabot, we’re big fans of high-volume buying that follows great earnings reports, so I kept the stock rated buy.
And the news kept getting better, and people kept buying the stock all summer and into the fall.
In less than two years, the stock had grown from a wallflower into the top glamour stock of the year. By the start of September, the stock was up more than 400% for the year. But the higher the stock got, the more danger signs I saw in its popularity. So I increasingly warned my readers that the higher the stock, the greater the downside potential. And on September 24, a week before the stock peaked, I wrote, “I continue to advise that you take a partial profit if the idea of a major correction is painful.”
A week later, my readers were looking at profits of 559%.
And then the stock began losing momentum, as all great glamour stocks do. And, today, two months later, Tesla is down 38%.
Now, the easiest thing in the world to do today is to blame the fires for this decline.
But the reality is that TSLA—the stock—was ripe for a fall, just as every top glamour stock is at its moment of peak perception. It’s a natural evolution.
In September 2012, just over a year ago, Apple was the most popular company in the world, and the most highly valued too, trading at $700 a share. Everyone loved it.
Yet seven months later, Apple had lost 46% of its value—and there was no one reason for the decline.
But to students of market psychology, the reason was obvious. At the top, the world had been singing the praises of the company. Everyone who could own Apple owned it, especially institutional investors.
But when the tide turned the momentum shifted, and with no more buyers left, the power shifted to the sellers. Furthermore, as with Tesla, the lower the stock fell, the worse the news got. The Apple Magic was gone.
So what comes next for TSLA?
Well, at Cabot we have a model for the behavior of hot young stocks, with phases labeled Romance, Transition and Reality. TSLA is now in the Transition Phase, where making money is very difficult for investors.
Eventually, I expect it to enter the Reality Phase, where making money is easier, though the stock isn’t quite the skyrocket it was in Romance Phase. When that time comes, I expect to be telling my Cabot Stock of the Month readers to buy again. If you’d like to join them, click here.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 11/11/13 Sign up for Cabot Wealth Advisory--it's free!
Last week, Tesla Motors (TSLA) reported third-quarter results.
The company delivered more than 5,500 Model S vehicles (including mine).
More than 1,000 vehicles went to European customers, a big market that is just opening up, and at least one went to China, which is now the biggest market in the world.
Gross margin, excluding ZEV (zero emission vehicle) credits, increased to 21% (all numbers non-GAAP), up from 14% in the previous quarter.
Revenues were $603 million, up 9% from the prior quarter and beating analysts’ official estimates by 12%.
Earnings per share hit $0.12, beating analysts’ expectation of $0.11.
Cash increased by $49 million to $796 million. You can play with accounting methods all you want, but cash is real.
Demand continues to exceed supply, despite the fact that the company has done no marketing.
In sum, the company continues to make great progress.
Furthermore, the future is bright.
Tesla expects to deliver just under 6,000 vehicles in the fourth quarter.
It continues to roll out its Supercharger network, which allows users to recharge, very rapidly, for free.
And it expects gross margins in the fourth quarter to hit 25%, which very impressive for an automobile company.
If there is one fly in the ointment, it’s the supply of lithium-ion batteries, which has the potential to be a real bottleneck some years down the road unless supplies can be increased. But for now, all is well, thanks to an agreement with Panasonic to guarantee delivery of at least 1.8 billion cells over the next four years. (Each Model S has an average of 7,000 cells.)
Fundamentally, it all sounds good. Tesla remains on course as the leading force in the transition from a fossil fuel automobile environment to one powered by quiet, smooth and efficient electricity.
So why is the stock going down?
Some people might say it’s because of fires, which have certainly made the headlines. But no one was hurt in the fires, and it’s worth noting there are 150,000 gasoline-powered car fires per year in the U.S. (most of which don’t make headlines). It’s also worth remembering that the National Highway Traffic Safety Administration gave the Tesla Model S its highest ranking ever.
No, the real reason the stock is going down has nothing to do with the news and the facts; it has everything to do with the chart and perception!
So let’s start with the chart.
A year ago, TSLA was trading at 30.
At the time, the car had recently received top marks from Motor Trend, Automobile Magazine and Consumer Reports, among others, but there was still widespread doubt about Tesla’s ability to survive as a business. In fact, there was no evidence the company could even make a profit.
Most important of all, the stock market was doing nothing. There was no appetite for risk. So TSLA traded around 30.
But the stock had the potential to go up, because the vast majority of investors did not own TSLA. So when the bull market started rolling a year ago (just as we were heading toward a fiscal cliff), and investors began taking on more risk, and Tesla started selling more cars, TSLA started moving. And when the company released its blockbuster first-quarter report, the stock’s ascent accelerated—all because potential investors were rapidly upgrading their perceptions of the cars, the company and the stock.
Throughout the summer, all was rosy for both the company and the stock. As the news kept getting better, positive vibes around the Model S grew and grew. And as their perceptions of both the cars and the company grew, investors kept piling in, making TSLA the top-performing stock of the year.
Eventually, the stock hit 192, for a gain of 540% from that 30 starting point. But no trees grow to the sky. And at 192, TSLA was trading in nosebleed territory, with a lot of momentum investors itching to take profits and jump ship the moment the uptrend ran out of gas.
In hindsight, we can see that it was the first Model S fire that was the catalyst that started the selling. But even more important is that the stock market as a whole had come a long way (the S&P 500 was up 21%, with many glamour stocks more than doubling), and the climate was ripe for the sellers to take charge.
And so they did, which shouldn’t surprise anyone who’s spent decades studying the movement of stocks, particularly revolutionary stocks like Tesla Motors.
So now, what had been an incoming tide for both TSLA and the market has become an outgoing tide (for TSLA and possibly the market), as investors take profits, and potential investors sit on their hands, waiting for TSLA to bottom.
As I write, the stock is some 30% off its high.
So what comes next? Well, if you’re a subscriber to my Cabot Stock of the Month, you’ve probably taken some profits, which I advised doing repeatedly beginning in August. And maybe you’re holding some for the long-term, like me. I still believe in the company’s potential to revolutionize the auto industry, and believe management has the smarts to do it.
But I don’t think this stock is a buy here, mainly because one of the market maxims that’s been burned into my brain is, “Don’t try to catch a falling knife.”
That 30% drop could easily grow larger. In fact, one rough guide is that a growth stock can give back half its prior gain—which would take TSLA down to 111.
Also, there’s technical support at 120, and the 200-day moving average is now at 104 and rising, so somewhere in there, TSLA is likely to bottom.
But trying to pick that bottom is a fool’s game.
And anyone who tells you he knows where and when the stock will bottom is lying.
For now, I’m content to sit back and watch the negative sentiment grow—three fires now!—as the market once again teaches a lesson about investing in high-profile stocks.
For more information on Cabot Stock of the Month, click here.
Tesla (TSLA): Revolutionary stock #8
Tesla (TSLA) is the eighth in my series of “10 Revolutionary Stocks.”
Today I won’t spend a lot of time discussing Tesla (the company) or Teslas (the cars), because a lot of the facts are increasingly well known. But I will spend time justifying the stock’s inclusion here today, even though it’s already had a big advance.
It’s run by Elon Musk, who made his first fortune in PayPal, and in addition to Tesla, runs SpaceX, which makes rockets that service the International Space Station, among other things.
The company’s located in Palo Alto, California, where a lot of really smart, motivated people are found, not in Detroit. California is where the cars are made too.
Tesla’s business model is modeled on that practiced by successful high-tech companies: make a small number of expensive products for rich pioneers (the original Tesla Roadster); use the profits from them to make more products at a lower price for a second wave of affluent early adopters (the Model S); and use the profits from them to make lots more cars at a mass market price point, etc.
Musk’s goal is not simply to sell electric cars; Musk’s goal is get the world to transition from its polluting fossil fuel transportation infrastructure to one based on highly efficient battery-powered transportation.
To achieve that vision, Tesla is building a nationwide network of charging stations that will provide free charging—forever—to Tesla owners. When possible, these are solar-powered, and when possible, they provide electricity to the grid, generating revenue. Also rolling out are automated battery swaps—that can be achieved faster than a gasoline fill-up.
Furthermore, Tesla is bypassing the entrenched dealership sales model, not least because the traditional dealer adds 9% to the price of a car, and leaves many buyers unhappy with the experience. To buy a Tesla, you simply pay list price, and that’s that. That’s a revolutionary change I appreciated when I ordered mine—which I expect to receive next weekend.
Finally, Tesla has not spent a dime on traditional advertising. So far, word of mouth has done the job very well, and the backlog of orders is two to three months.
The five-seat Model S sedan not only received the highest grade ever from stodgy old Consumer Reports (99 out of 100), it also received the highest grade ever in crash tests run by the National Highway Traffic Safety Administration.
And, because it’s a truly remarkable driving machine, the Model S was named 2013 Car of the Year by Motor Trend and 2013 Automobile of the Year by Automobile magazine.
Most Model S sales to date have been in the U.S., but sales in Europe (where gasoline prices are far higher) and China are just beginning and will no doubt be a big contributor going forward.
For the record, analysts are estimating that Tesla will earn $0.55 per share this year and $1.69 per share next year. That’s a great positive trend.
TSLA’s history is fairly simple. From its June 2010 IPO at 17 until March of this year, when it built a base at 38, TSLA was in a modest uptrend, characterized by normal ebbs and flow. It was nobody’s darling; there was too much uncertainty.
But then the good news started coming, notably the company’s March 31 announcement that sales were running ahead of expectations and then the May 8 earnings report that wowed analysts. Both news items sparked new waves of buying, kicking off a powerful uptrend that has run steadily right up until the stock hit new highs last week!
So what comes next?
Well, some people (those with little experience at chart-reading) look at a stock that’s up this much and say, “It’s too high,” not even realizing that many people were saying the same thing back in June when the stock hit 100.
Wiser heads remember the chart patterns of other revolutionary stocks that were big winners and know that it can certainly happen again.
So let’s look at it this way. TSLA, just over three years old is up 882%. Is its run possibly over?
On the other hand:
REVOLUTIONS TAKE TIME
Microsoft (MSFT) gained 325% in its first three years, and 581% in the next three years.
Cisco Systems (CSCO) gained 1,275% in its first three years, and 310% in the next three years.
Home Depot (HD) gained 1,586% in its first three years, and 217% in the next three years.
eBay (EBAY) gained 479% in its first three years and 318% in the next three years.
And, of course, all of these stocks went on to greater long-term gains. Revolutions take time.
Now, the forces that bring such great performance from stocks are interesting.
In addition to the measurable fundamental aspects like revenue growth, sales growth and price/earnings ratios, there’s a critical factor known as public perception, which is often easier for psychologists to understand than for accountants. In short, when perceptions of a young company, and a revolutionary product or service (like those above) and a strong stock improve (all at the same time), it reinforces results in every one of those areas.
Today, more and more people are learning about Tesla’s great, revolutionary cars, so more and more people are learning about Tesla, the great young company, so more and more people are learning about—and developing a positive opinion about the future of—TSLA, the great young hot stock, so more and more people are buying the cars! Being part of a successful movement feels good!
Which is not to say that TSLA (the stock) will go up forever. None of these ten revolutionary stocks should be expected to do that. But it does mean that there exists here extraordinary profit potential, which simply does not exist in a well-known mature stock, whether it’s Johnson & Johnson or Microsoft or Chesapeake Energy.
Note: All 10 of these revolutionary stocks were selected on July 12, and I’ve written about one nearly every week since, in alphabetical order, so there is no particular timeliness in this recommendation. (TSLA closed at 130 on July 12).
Just two weeks ago, on June 24, Mike Cintolo, editor of Cabot Top Ten Trader, recommended Tesla (TSLA) as a buy. Here’s what he wrote.
“At this point in the market’s correction, Tesla Motors remains the top glamour stock in the market. (By glamour stock, we generally refer to a rapidly growing, revolutionary firm that is quickly gaining sponsorship, but can’t yet be called an institutional favorite.) Usually with such a stock, there are plenty of doubters, and that remains the case with Tesla; the firm’s voluntary, small recall of 800 Model S vehicles produced in early June caused the naysayers to come out in full force, for instance. And even last week’s “news” of Tesla’s successful battery switch (swapping out a car’s battery with a fully-charged one), which should help alleviate range anxiety, was met with some jeers. But Tesla is clearly not one of the strongest stocks in the market because of the present; the company is likely to make only small profits this year as it delivers as many Model S sedans as it can. The idea here remains that Tesla has stepped so far out in front in the electric vehicle market that it should grow many-fold as its Model S, its upcoming Model X crossover (deliveries likely late next year) and, eventually, its lower-priced sedan hit the market in the years ahead. And investors are willing to pay up for that today. Obviously, there are risks, especially if Model S demand softens for some reason. But Tesla has all the makings of a big stock if management executes and things break its way.”
Back then, TSLA was trading at 101. Today it’s up over 115, in part because an analyst from Jeffries put a target of 130 on it this week. Short-term, that’s extended, but long-term, I remain very bullish on the stock.
So, you could simply buy the stock right here, but then you’d be on your own. What I recommend instead is that you take a risk-free subscription to Cabot Top Ten Trader, to get Mike’s latest insight on the stock, and many more like it. Read more.
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 5/30/13 Sign up for free Cabot Wealth Advisory
Tesla Motors (TSLA) has been one of the hottest stocks in the market, zooming to a gain of 206% over the past 10 weeks. Year-to-date, it’s up even more. So is it too late to buy?
You can get plenty of opinions on this exact question on the Internet, and for the most part, these opinions are worth what you pay for them—nothing.
Just because people CAN post an opinion, doesn’t mean they should. And it certainly doesn't mean you should trust them.
But hey, this is America. Free speech is one of the things that’s made us great, and I don’t want to stifle anybody.
What I do want to do today is give you some guidelines on evaluating this very unusual stock and company.
First, I’ll cover the long-term fundamentals, then the short-term fundamentals and then the technicals.
Long-term, Tesla’s big promise is that it will modernize the automobile business, not just in one way—by making electric cars—but in numerous ways. The word REVOLUTIONARY, therefore, applies fully, and this is very important, because in the long run, the biggest growth stock winners have been revolutionary companies that changed the world. In my lifetime, these have included Amazon, Apple, Cisco, eBay, Green Mountain Coffee Roasters, Home Depot, IBM, Kodak, McDonalds, Microsoft, Netflix, Starbucks, Wal-Mart and Whole Foods.
To review, here’s Tesla’s revolutionary promise:
1) Its cars run on electricity, not gasoline.
2) This electricity is currently generated by lower-cost sources of power than gasoline and will increasingly be generated by free, clean solar power, both at public charging stations and at owners’ homes.
3) Lacking an internal combustion engine—in fact, lacking any fluids at all except windshield washer fluid—Tesla’s cars will need far less service than we are accustomed to giving our vehicles. They will be far more reliable.
4) Because they are electric—and electronic—they can be reprogrammed on the fly, over the Internet, giving their owners not only the ability to adapt the vehicle to specific road conditions but also to upgrade over time.
5) These cars are produced at a highly automated non-union factory in California, which is free of the century-plus economic and cultural baggage that hampers the efforts of most car companies to adapt.
6) These cars are sold directly to customers at fixed prices, bypassing the existing car dealer infrastructure totally. With dealerships adding an average of 6% to 9% to new vehicle costs, and costing consumers hours of time in negotiation as well, is there anyone outside of that industry who thinks this is a bad idea?!!
7) Finally, to recap the basic business model, Tesla first produced a very small number of two-seat sports cars, which yielded fat profit margins and bankrolled the development of the current crop of Model S luxury sedans. These will yield slightly lower margins, but at greater volume. And these will bankroll the rollout of the Model X Crossover SUV and then the even-larger-volume rollout of the mass market all-electric $40,000 sedan that will arrive in a couple of years.
In response to questions about the possibility that Tesla might be bought by a larger company, CEO Elon Musk has answered, “What the world really needs is a great, affordable electric car. I’m not going to let anything go, no matter what people offer, until I complete that mission.” Skeptics who see Tesla as a start-up manufacturer of expensive cars are guilty of short-sightedness.
Interestingly, because everyone alive today has grown up in the internal combustion era, it’s hard for most people to truly envision the future as Elon Musk sees it. And even if they’ve imagined it, most people are unprepared for the change in behaviors—like time spent pumping gas—and the change in values that these cars will usher in. But make no mistake, the revolution has started, and forward-thinking investors will have plenty of opportunities to profit as it unfolds.
So how big can Tesla get? How profitable can it be? How high can the stock go? The first two questions, and perhaps even the third, can be tackled by bean-counters, but I’ve never found that kind of analysis useful when investing in revolutionary stocks.
Certainly, no bean-counter could justify the stock being at $100 today. No, to invest in Tesla at this point, you’ve got to embrace what Tom Phelps called “the unforeseeable and the incalculable.” There’s no way of knowing what Elon Musk will do next. There’s no way of knowing how fast Tesla’s Model S will sell in Europe. And there’s no way of knowing how far forward investors are willing to look when evaluating this stock. There’s no knowing how quickly Tesla might license some of its powertrain technology to current partners Toyota or Mercedes. There are just too many unknowns. But there’s no question that the long-term potential for the company is very, very big.
There’s been a lot of positive news about Tesla in recent weeks.
1) First-quarter earnings were spectacular—above all analyst estimates—driven by both increased deliveries and increased manufacturing efficiencies. Look at this chart comparing Tesla’s first quarter Model S sales to the most similar cars of its competitors.
Tesla Model S 4,750
Mercedes-Benz S-Class 3,077
BMW 7 Series 2,338
Audi A8 1,462
2) The company completed a secondary stock offering, raising $1 billion.
3) It paid back its Department of Energy loan of $452 million, nine years ahead of schedule!
4) Better Place, the Israeli company that offered a battery-swapping program for European electric cars, is now headed for liquidation, joining Fisker and Coda in the exclusive “Recently Failed Electric Car Ventures Club.” This means that competition for Tesla is once again pretty much limited to the traditional old auto companies.
5) Today’s announcement about the tripling of Tesla’s supercharger network—where charging is free!—should alleviate some of the mileage range anxiety of skeptics.
On the downside, short-sellers point to the fact that the stock market now values Tesla at more than $12 billion, while the company’s revenues in 2013 could be around $2.4 billion. Every other public auto manufacturer is valued at less than one year’s revenues, so if the short-sellers’ dreams come true, the stock will drop more than 80% from here!
Summing up the short-term, experience tells me that eventually, some cloud will rain on Tesla’s parade; it doesn’t really matter what the news or catalyst is. It could start at this level; it could start from an even higher level. But with the stock now trading some 80% above its 50-day moving average, any bad news has the potential to kick off a serious correction. Which brings us to technical analysis.
We all start off as fundamental investors. It’s the first language we learn, and some of us never learn another. But some of us learn the language of technical analysis, and once we learn it, we never go back to being single-language investors. Armed with two languages, we use them both!
And why is this second language so important? Because a stock’s charts reflect EVERYTHING that all interested investors “know” about that stock. And collectively, those investors are smarter than any one of us. In fact, as Jesse Livermore wrote, “the market is never wrong; opinions are.”
So looking at the chart of TSLA, here’s what I see.
TSLA came public in mid-2010 at 17. It peaked at 30 the first day, and the next week was trading at 15. It’s been in a general uptrend since then, but the stock didn’t get hot until this year, when the company pre-announced a profitable first quarter at the start of April and six weeks later blew away all expectations with the actual report.
Investors who became more optimistic about the company’s future bought as the shares climbed higher. Skeptics who’d been short the stock bought to cover their losses. And the stock went crazy!
From late March to late May, TSLA soared from 35 to 110, for a gain of 214%!
Subscribers to my Cabot Stock of the Month advisory, who bought at 29 back in December 2011, and are looking at even larger gains!
This is rather extreme behavior. But as I mentioned at the start of this column, it is not unprecedented, particularly in such a broad and strong bull market as we’ve had this year.
So what comes next? Is TSLA too high to buy now?
If you have a long enough horizon, my answer is no. Buying Tesla now might be like buying Microsoft in 1987, after the stock had tripled in less than a year. That worked out pretty well. But significant volatility is to be expected, and unless you have a cast-iron constitution, I recommend taking it slow here, giving the stock time to find its footing, and allowing time for the broad market’s excesses to dissipate a bit.
Ideally, if you’re going to invest at this point, I strongly recommend that you take a subscription to Cabot Stock of the Month, so you can get my weekly updates on TSLA, and other high-potential stocks as well. Read more.
See Tim Lutts Discuss Tesla on China Central TV: http://www.cabot.net/videos/cctv-tim-lutts
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 4/16/13 Sign up for free Cabot Wealth Advisory e-newsletter
Back in 1972 a fellow named Thomas W. Phelps wrote a book about the ultimate buy-and-hold investing strategy, called "100 to 1 in the Stock Market," The main idea was that you should buy companies with excellent prospects for growth, companies that had the potential to change the world in a big way, and to grow earnings immensely in the process. And you should hold those stocks forever.
The results of this method, detailed in Mr. Phelps’ studies, were superb. And the phrase that sums up his method more than any other is this.
“Perhaps the greatest advantage of all in buying top quality stocks without visible ceilings on their growth is that when we do so we give ourselves the chance to profit by the unforeseeable and the incalculable."
Well, I think Tesla (TSLA) (the company) has the potential to change the world, not just by getting us to drive electric cars, but by getting us to give up the practice of stopping to buy gas, and the practice of haggling with car dealers, both of which we accept as necessary evils. I think this car company’s potential is unlimited.
And I think TSLA, as a result, is one of those stocks that has the potential to be a huge winner, if you just give it time, so that you can profit from the unforeseeable and the incalculable.
I first recommended TSLA in Cabot Stock of the Month on Dec 28, 2011. Subscribers who followed my advice bought at 29.
Four weeks ago, I featured TSLA here as the last of my “10 stocks to hold forever” feature. At the time, the stock had pulled back from 39 to 35 and I wrote, “From a long-term perspective, this looks like a decent entry point.”
Soon after, CEO Elon Musk announced that Tesla was on target to turn a profit in the first quarter of this year, and to deliver 20,000 cars this year, and the stock rocketed out to new highs on huge volume.
Now, Wall Street analysts may lack imagination, and I know they don’t subscribe to “the unforeseeable and the incalculable,” but when they plug Tesla’s earnings numbers into spreadsheets, they don’t need much imagination to see that those earnings will grow if the company continues to execute on its plans to grow revenues by expanding production and developing lower-priced cars. So institutions are definitely getting on board this stock.
But volatility remains an issue here. Traders like this, because they profit on the long or short side, and there’s no doubt the stocks’ recent surge has encouraged some short-sellers to try to profit from the next pullback. Maybe they will.
But TSLA’s long-term trend is clearly up. Today, it closed at an all-time high, marching to its own drummer. I recommend that you get on board on the next normal pullback.
Better yet, I recommend that you take a trial subscription to Cabot Stock of the Month so you stay updated on all my TSLA advice, and learn about other great stocks as well. For details, click here.
Tesla Motors (TSLA): Tim Lutts' favorite stock
By Timothy Lutts, Cabot Chief Investment Officer and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 3/18/13 Sign up for free Cabot Wealth Advisory e-newsletter
The tenth and final stock in my list of 10 Stocks to Hold Forever is Tesla Motors (TSLA), and it was selected by me. In fact, though I work very hard to avoid falling in love with stocks, I will confess that TSLA is my favorite stock.
Tesla Motors was founded 10 years ago by Elon Musk, who made a small fortune selling PayPal to eBay, and it’s different from traditional automobile companies in five big ways.
First, its cars use no gasoline. They’re all-electric, recharged primarily by plugging in and secondarily by regenerative braking.
Second, its cars are made in California, guided by a business plan generally used for technology companies.
Third, its cars are not sold by dealers; they’re sold directly by the company, either in showrooms (like Apple) or remotely.
Fourth, Tesla carries no inventory. It has a backlog of orders, so each car is manufactured for a specific customer.
Fifth, Tesla offers no financing; it takes deposits when taking reservations, and is paid in full upon delivery.
In short, the Tesla buyer gets a much cleaner experience than what most of us are accustomed to when buying a car. And maintenance of the cars is simpler, too, with only tires, brake pads and windshield wipers needing regular attention.
But here’s the best part. In addition to all the above, the company’s first high-volume car, the Model S, is simply a joy to drive!
It can go from 0-60 MPH in 4.1 seconds (with the biggest battery pack); that’s quicker than a Porsche 911. Or it can go 300 miles on a single charge. Its center of gravity is so low (the battery is the floor) that it corners like a go-kart. And it seats five adults, with room for luggage in both the back and in the front (where the engine is in most cars).
(Note: I’m not buying one until I can get two features I’ve grown accustomed to in my Audi: all-wheel drive and a back-up camera.)
The Tesla Model S has won:
Motor Trend’s Car of the Year Award, with the first-ever unanimous vote.
Automobile Magazine’s Automobile of the Year Award.
Yahoo Autos’ Car of the Year Award.
In short, the car is wonderful. And the engineering has been nearly perfect.
Contrast that with competitor Fisker Automotive, born soon after Tesla and competing for the same market with a hybrid powertrain. Fiskers have had numerous technical troubles. Battery supplier A123 went bankrupt. 300 cars were ruined by Hurricane Sandy. And founder Henrik Fisker recently resigned, reportedly as the Chinese firm Geely (which now owns Volvo) discussed a takeover.
Tesla, meanwhile, is on target to turn a profit in the first quarter of this year, and to deliver 20,000 cars this year. And the Model S has been so well received that the company is delaying the production of its lower-priced SUV (Model X), so it can manufacture more Model S sedans.
Now, investing in automobile companies is always challenging, mainly because this is a mature industry. And investing in automobile startups has traditionally been an excellent way to lose money. But I think Tesla is going to succeed in a big way precisely because it is doing so much differently, because Elon Musk is an exceptionally capable leader, and because the world (this is a global story) is ready for a car that frees its users from the tyranny of the gas pump.
I first recommended TSLA in Cabot Stock of the Month on December 28, 2011, when the company’s fortunes were far shakier. But I had a lot of confidence in Elon Musk, and I had a lot of confidence in what the stock chart was telling me.
This is what I wrote back then:
“Tesla came public in June 2010 at 17, and peaked at 36 that November, before retreating to a low of 21 in February of this year. And the big market selloff this August pulled it down to 21 again, establishing a double bottom. It pushed up to 35 in November and December, but selling pressures (sparked by a negative Morgan Stanley opinion on electric cars in general) pushed it down to touch 26 last week … and that leaves it sitting right on its 200-day moving average, which we view as a buying opportunity.” (Subscribers who followed my advice bought at 29, and they should still be holding.)
And luckily for you, the timing of today’s recommendation (the last of my 10 stocks to hold forever) coincides with another buying opportunity!
In short, TSLA’s main trend remains up. But it’s a volatile stock, not least because there are short-term traders in the stock, many of whom sell the stock short to make money on the downside. The stock hit a high of 40 in February before falling to 34. Two weeks ago it was back up at 39.5, but last week sellers took over, and sent it back down to 35, where it’s found renewed support. I’m not saying you should bet the lunch money, but from a long-term perspective, this looks like a decent entry point. For more information, click here.
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 10/2/12 Sign up for free Cabot Wealth Advisory e-newsletter
A favorite company of mine today parallels Amazon.com in its early days in several ways.
It’s Tesla (TSLA) the young electric car company run by Elon Musk, and here’s what I see.
First, Tesla is losing money, just as Amazon did.
Second, its founder is a visionary leader, in the mold of Jeff Bezos.
Third, it’s taking on very large competitors in a large and very established—one might say sclerotic—industry.
Fourth, it’s attempting to succeed in this industry—and to revolutionize it—by doing virtually everything differently. For example:
Tesla is not using gasoline engines. After a century of development, the improvements to be made from gasoline engines are minimal.
Tesla is using batteries, which not only enable superior acceleration and recapture energy upon deceleration but also—because the flat battery is on the floor creates a low center of gravity—enable better handling and more spacious interiors.
These batteries promise no tailpipe emissions. They provide far superior mileage per unit of energy. And they enable better aerodynamics as well; Tesla’s latest offering—the Model S—which seats five adults and two children, is so well designed it has a lower coefficient of drag than any production car on the road today—even the Toyota Prius.
And to date, the cars coming off the line are perfect. Musk is intent that his customers find absolutely no reason to complain about the quality of the product. And to date none have.
Furthermore, the reviews from media, both automotive and mainstream, have been glowing.
Performance-wise, the one shortcoming is the lack of unlimited range that we view gasoline-powered cars as having. But Tesla is working on that (it’s installing a network of chargers in California), and I for one would trade the ritual of stopping to fuel up with gasoline (especially in winter) for a nightly ritual of quickly plugging in my garage, just as I plug in my iPhone every night.
Tesla is doing it differently on the marketing side, as well.
Instead of selling cars through independent or franchised dealers, they’re selling them through stores, overseen by the same guy who designed Apple’s stores!
Now, there are differences between Amazon back in 1998 and Tesla today.
Amazon was growing very fast, while Tesla is not.
Amazon’s stock was shooting higher, while Tesla’s is not.
And Tesla has a government loan to pay back, while Amazon did not.
But that was a different time, when investors were shoveling money into promising stocks, rather than keeping it under the mattress.
And the automotive industry is far more complex than the bookselling industry, so ramping up production takes more time.
Still, I think Tesla has the potential to revolutionize the automotive industry, and thus I think TSLA has the potential to be as big a winner as AMZN was more than a decade ago, and that’s why it’s one of the stocks in the portfolio of Cabot Stock of the Month Report.
I urge you to give it a try. Details here.
By Timothy Lutts, Chief Investment Officer and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 5/14/12 Sign up for free Cabot Wealth advisory e-newsletter
I want to talk about my favorite stock, Tesla Motors (TSLA), which I last wrote about here nearly three months ago, on February 20. You can read that article by clicking here.
Tesla Motors is in the business of designing, manufacturing and selling revolutionary new cars, which are powered solely by batteries.
It's headquartered in Palo Alto, California. It's managed more like a high-tech company than an old-school automotive company. And its results so far have been terrific.
First the company sold more than 2,250 Roadsters, two-seat sports cars priced at roughly $110,000 each. The total production run of these cars will be 2,400, and the remaining vehicles will be sold in Europe and Asia.
Along the way it signed agreements to build powertrain systems—including lithium-ion batteries—for both Toyota and Daimler AG. That's a great testament to the quality of Tesla's engineering and I believe these agreements (and more like them) are likely to last for many years, given that Tesla's technology is patented.
But the center attraction (for now) is the Model S, a car designed to compete with the mid-level luxury sedans of the leading German manufacturers, Mercedes-Benz, BMW and Audi. Priced at roughly $60,000 (and up) it will seat five adults and two children, will go as much as 300 miles on a single charge, and will blast from 0-60 MPH in 5.5 seconds.
After that will come the Model X, a crossover/SUV with showy but practical falcon-wing doors that is also expected to sell for $60,000 and up.
Eventually, the company is likely to move to higher-volume lower-priced cars for the mass market, as its technology improves and economies of scale make it practical and profitable at lower price points--and it will be interesting to see how low Tesla's management will go.
In any case, the big news last week, when management revealed its first quarter results, is that Model S deliveries will begin in June rather than July, a full month ahead of schedule!
This is an astounding achievement for a high-tech business doing such revolutionary work, revealing an impressive level of professionalism and perfectionism. Dare I say Tesla is the automotive equipment of Apple?
Additionally, we learned:
That the company has taken more than 10,000 deposits for the Model S.
That the Model S may be "the safest car on the road" once it completes crash testing.
That the Model S is likely to get a mileage rating of 89 MPGe. (That's miles per gallon equivalent.)
That gross margins of 25% are expected in 2013.
That a major announcement about charging infrastructure is likely in July.
That there will be nearly 30 stores by year-end.
And finally, that Tesla will begin repaying its U.S. loans by the end of 2012, making it the first automaker to do so! This is big. To recap, in 2009, the Obama administration awarded Advanced Technology Vehicle Manufacturing loans to Tesla, Fisker, Ford and Nissan to create jobs and spur development of cars that used less gasoline. The loans must be fully repaid within 10 years.
Fisker has failed to meet some milestones, and been blocked from receiving the remainder of its funds. Ford and Nissan will presumably repay theirs eventually. But Tesla will repay its loan first, and in the process tell investors its positive cash flow is expected to be ample.
Some of that cash flow will come from Toyota. Details are unknown, but $100 million is the value of the current agreement and part of that will be satisfied by the powertrains incorporated in the Toyota RAV4 EV, promised for late this summer. Sadly, the vehicle will be priced at roughly $50,000, roughly double the price of a gasoline-fueled RAV4. Furthermore, Toyota expects to build just 2,600 of the cars in the next three years or so, and sell them only in California, proof that Toyota's goal is to appease regulators rather than delight customers.
Tesla, on the other hand, is totally focused on delighting its customers. (The fact that its cars are totally electric means they automatically delight regulators in California, as well as Norway, Switzerland, Netherlands and Denmark, where government tax policies favor electric cars.)
The fact that 10,000 deposits have been received (without traditional advertising and without dealer incentives) tells you many consumers are already impressed. But the "moment of truth" will come when the first Model S cars are delivered, and when the first cars are driven by and reviewed by automotive journalists. That day will come soon, and based on the fact that the company has achieved every one of its goals so far, I expect these journalists to be delighted.
One final note about the company. Unlike most traditional car companies, Tesla doesn't have an adversarial relationship with a dealer network. Like Apple, it owns its own dedicated stores, and every worker in those stores there is an employee of Tesla. And the cars (just like iPads) have prices that are precise and non-negotiable, which most consumers find much more enjoyable than haggling over price and then leaving wondering if they're been cheated.
So far, I've focused on the company. Now let's look at the stock, remembering that the two are distinct entities.
TSLA came public nearly two years ago at 17, and now it's trading at 31. So far, so good.
In fact, that performance is substantially better than the stock of General Motors, which the federal government sold back to investors at a price of 33 a few months after Tesla came public, and which is now trading at 22, down 33%.
Yet TSLA is still unloved by the vast majority of investors, if not unknown. Skepticism is rampant.
Why? Because most investors run spreadsheets that look at traditional measures of value, like earnings and stock valuation, and by those measures, TSLA is a disaster waiting to happen. After all, the company has never made a penny and its stock is valued at $3.53 billion, one-tenth the value of GM.
Also figuring into most investors' reasoning are the problems experienced by other manufacturers, from Fisker (technical troubles, layoffs, the government loans), to Chevrolet (the Volt has had technical troubles and production has been cut because of slow sales). They tar Tesla with the same brush, even though Tesla has made no mistakes yet.
But the simple fact is that most investors are avoiding TSLA because most investors have a difficult time imagining a revolutionary future, and most investors fail to appreciate the power of romance to move a stock.
The revolutionary future in this case revolves around the electric car, which never needs to stop at a gas station, which needs far less maintenance than a gasoline-fueled car and which serves its owner well if it is simply plugged in each night, just as I plug in my iPhone.
And the role of romance means that valuation measures are irrelevant (yes!) in a growth stock's early phases. You can understand this by considering potential money flows.
In this case, you have an automotive industry valued at roughly $650 billion. Heading the list are Toyota at $140 billion, Volkswagen at $64 billion, Honda at $62 billion and Daimler at $54 billion, followed by Nissan at $44 billion, Ford at $40 billion, General Motors at $34 billion and finally Tata Motors at $17 billion.
Little Tesla is valued at just $4 billion--and that looks high if you simply consider that the company's revenues in the past 12 months were just $185 million.
But it looks low if you consider the company's growth potential together with the ability of that $650 billion to shift from one investment bucket to another rather quickly.
All those established manufacturers, you see, are owned by thousands of institutional investors. These investors are a conservative, fearful group, conditioned by the shocks of the economic implosion of 2008 and the weak rebound since.
As a group, they tend to pay more attention to risk management, and many have given up on the prospects for real growth in the industry. But as they see Tesla selling tens of thousands of cars, and turning very profitable very quickly, I think their eyes will be opened. Recognizing the growth potential of Tesla, they'll bite the bullet and invest "a little" despite the stock's high valuation.
How much is a little? Well, if it's just 1% of their investment in those old automotive companies, it would amount to $6.5 billion, or more than twice Tesla's valuation today!
In short, when TSLA is recognized as the best-managed, most profitable (per car) and fastest-growing major automobile company, every investor in the industry will have to buy in.
My suggestion to you is to invest before they do.
Better yet, take a subscription to the newsletter I edit, Cabot Stock of the Month, to get regular updates on this stock, and other great stocks as well. To learn more, click here.
By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month 2/20/12
Moving on to a recommended investment, I'll start by saying I could recommend 100 stocks today. That's how strong this market is. Among well-known names alone, I could recommend Whole Foods Market (WFM), Ulta Salon (ULTA), Caterpillar (CAT), Home Depot (HD), FedEx (FDX), Lululemon (LULU) and Michael Kors (KORS).
All are growing, all are strong, and all have been recommended in Cabot advisories.
But instead I want to talk a bit about Tesla (TSLA), the electric car company.
The high points, quickly, are these:
Tesla was founded and is led by Elon Musk, the genius who invented PayPal. There were co-founders but Elon is the man at the helm today.
The company is headquartered in Silicon Valley, and run like an Internet company, not an old-fashioned car company.
Its strategy of developing, building and selling high-priced cars first and then letting technology trickle down to lower-margin mass-market cars is working brilliantly; in fact, fourth quarter earnings were released last week and they were very good. Furthermore, Musk promises a profit for 2013!
And the company's engineering is so good that Mercedes-Benz has contracted for Tesla to develop a new, all-electric powertrain, and Toyota has contracted to buy production powertrains in the second quarter of 2012. This is a great endorsement of Tesla's cost structure; there are no pensions, and the work force is young, non-union and healthy.
But here's what I like best about the company, and why I think it's a long-term winner.
The company has made no mistakes!
Its cars perform superbly ... while Chevy Volt, for example, has battery fires.
Management has achieved every target it has set, while Fisker laid off people because it failed to meet a government loan deadline.
To me, this speaks of top-quality management, and in the end, management is what you're investing in. So far, Tesla's management looks golden.
And the stock looks good, too.
It came public in June 2010 at 17, and is now trading at 35, just 4% off its all-time high.
Now, some people will say the stock is too expensive. After all, 2011 revenues were $204 million and the market is now valuing the company at $3.7 billion ... 18 times revenue.
By comparison, you can buy General Motors for 28% of sales, and Ford for 35% of sales.
But I think valuation is irrelevant at this point.
What is relevant, contrarily, is the concept of Romance, Transition and Reality, a concept pioneered by my father, Carlton Lutts, who was both a romantic and an engineer.
He wrote, "A stock, like love, thrives on romance and dies on statistics."
Which means stocks that catch the public's imagination can soar to extremes way before such soaring is justified by the numbers. It's all about perception, and it happens with every new technology and in every bull market.
I've seen it in networking stocks; the original king was Cisco.
I've seen in data storage stocks; remember Iomega?
I've seen it in solar power stocks; First Solar shone brightly.
I've seen it in footwear; Crocs ran ahead of all the rest.
I've seen it in medical technology; remember Intuitive Surgical?
I've seen it in online brokers; investors in Schwab raked in the money.
I've seen it in communication stocks; remember Qwest and XM Satellite Radio?
And I've seen it in Internet stocks ... America Online and Yahoo and Amazon.com, to name a few.
So here we are, at the dawn of a revolutionary new era in the automobile business, and the easiest thing for people to do is look at GM and Ford, stocks they are comfortable with, and discuss valuation.
Meanwhile, the real opportunity is in the unknown, in Tesla, where the "unforeseeable and incalculable" mean great riches are possible a short way down the road. The choice is up to you.
For the record, Cabot Stock of the Month, which I edit, recommended buying TSLA in late December at 29 ... and it's still rated buy. So you could buy it here, but the smarter course is to take a low-risk subscription to Cabot Stock of the Month so you can keep up to date with my latest thinking.
For details, click here.
Editor's Note: The stock market is a scary place for the inexperienced. Let us guide you with our newsletter specifically designed for beginners. We'll give you one strong stock, once per month, chosen from five of our premium newsletters. Follow our recommendations, and you'll be a savvy investor sooner than you think. Click here to learn more.
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 11/14/11
The most exciting electric car company is Tesla Motors (TSLA), which came public in June 2010 at 17, and is now trading at 34, just 6% off its all-time high.
If you're into cars, you probably know more about Tesla's electric cars than I can tell you here, but if you're not, you should pay attention.
I'll give you the main points right up front.
While Toyota has blanketed the U.S. with milquetoast hybrid Priuses, following the standard old automakers' game plan, and the Chevy Volt and Nissan Leaf are uninspiring "appliances," Tesla has done something different. It has built cars that are thrilling to drive. And from its headquarters in Silicon Valley, it's been acting like a high-tech company!
And why not, considering that co-founder and current CEO Elon Musk made his fortune by selling PayPal to eBay for $1.5 billion?!
While there are five official co-founders of Tesla, Musk looms large in the story because he used much of his own money to bankroll the project, supplemented in time by money from private investors--as well as $465 million from the U.S. Department of Energy. Last year's IPO was just the latest chapter of financing, and possibly the last.
From the beginning, the goal of the company has been to create and sell affordable mass-market vehicles that would have a material impact on oil consumption. But Tesla hasn't yet targeted the mass market!
Its first step was to build and sell two-seat electric sports cars costing $109,000. It's sold more than 2,000 of these Roadsters (in 30 countries) and will stop after 2,500.
The revenues from that effort are driving work on the company's next car, the Model S, a sedan that sells for $57,400. Tesla has already taken reservations for more than 6,000, and will begin deliveries next year. It also expects to offer an SUV (Model X) based on the same platform, and begin deliveries of those in 2014.
And the profits from those cars will fund development of a mass-market car, priced around $30,000, that will compete with the likes of the Toyota Camry, Honda Accord and Ford Taurus.
This strategy mimics the way successful Silicon Valley companies launch products; hit the rich early adopters first, then drive costs down to serve the mass market.
Furthermore, Tesla has boosted its cash flow by inking major deals with Daimler and Toyota for its proprietary powertrain systems ... which tells me these components are the best!
The company's revenues were $15 million in 2008, $112 million in 2009 and $117 million in 2010. Next year could bring in $550 million, as the Model S hits the streets. And Musk promises a profit in 2013.
In conclusion, Tesla looks like one of the stars of the evolving automotive revolution.
While recent history has left the roadside littered with old names (Mercury, Plymouth, Pontiac and Saturn are dead, and Saab is comatose), Tesla is a fast-growing young company with minimal debt burdens and no retirees with costly pensions!
So what to do? You could simply buy the stock today and hope for the best. Or you could take a no-risk subscription to Cabot Top Ten Trader, which recommended the stock back on September 26, when it was trading at 26, and continues to update subscribers in each issue.
I recommend the latter, because this stock could be very big, and having expert guidance will help you make the most of it. For more details, click here.
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
|Tesla Motors (TSLA)
1050 Bing Street
San Carlos, California 94070
|Index Membership: N/A
Sector: Consumer Goods
Industry: Auto Manufacturers - Major
Full Time Employees: 1,417
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