Tesla Sales Climb Nicely. But the Stock Price Soars. What Gives?

Ignore the Tesla production delays, flaps in China, and Autopilot confused by a 35-mph speed sign defaced to read 85 mph. Tesla is on a roll. Production continues to climb and Tesla’s total stock market value – the market cap – has passed $100 billion, making it the world’s second most valuable car company after Toyota. It has already doubled in 2019.

This after having sold a record 368,000 cars in 2019. Toyota, with twice Tesla’s market cap, needed to sell nearly 30 times as many vehicles to have two times the value.

Tesla is on a tear this year: The $917 stock price Feb. 19 is 2.2X what it was at the end of December 2019. 2019 was up 25 percent but all in the last six weeks. TSLA’s early-January 2019 value didn’t return until Nov. 12. It takes a bold investor to know, not hope, the stock will keep rising. Still, who wouldn’t be happy seeing a 23 percent return in 2018 and 25 percent in 2019?

Why Tesla’s Doing So Well

It’s becoming clearer why Tesla stock is soaring: People value Tesla for its long-term potential as the leader in electrification.

  1. Tesla is a tech company as much as it’s a car company. Meaning: Huge run-ups are possible.
  2. The stock market sees EVs as the long-term future even if EV sales (all brands) in the US and Europe are super-soft so far this decade.
  3. Tesla stock is the clearest way to invest in an EV future. Also just about the only way, except for component parts (sensors, batteries), because there aren’t many publicly traded, EV-only car companies.
  4. The month-to-month miscues don’t affect Tesla’s long-term future. (Mostly.)
  5. Investors see Elon Musk as a visionary and they discount the short-term-goofy things he does, says, or smokes.

Tesla’s market cap is currently (as of late February 2020) at $165 billion, versus $227 billion for Toyota. In comparison with Tesla, the market cap of General Motors is $49 billion and Ford is $31 billion. So Tesla is twice as big as Ford-GM combined.

Tesla’s Huge Lead on Autonomy

Tesla is not all smoke and (heated side) mirrors. Nikkei Asian Review recently did a teardown of the Tesla Model 3 and engineers who did the analysis were surprised how far ahead Tesla appears to be in electronics.  “We cannot do it,” a Japanese car engineer said of the Model 3’s central controller and of Tesla’s head start on everyone else, which may be five to six years. One reason put forth is that Tesla does not favor legacy suppliers. As a new company, Tesla has started fresh, at least in regards to its core processing. It’s also generally agreed to have the best battery and battery-management technology.

If you wanted a reason to explain the exuberance over TSLA, this could be it.

Tesla sales have gone steadily upward. Well, mostly upward, with several quarterly hiccups. Tesla will hit 1 million cumulative sales in the next couple of months. The Model 3 represents 85 percent of sales. Model S and Model Y (no longer broken out) share the other 15 percent. Model 3 sales got real, as one might suspect from the chart, in the second half of 2018. The chart shows worldwide sales.

Who Else Could Build a Wedge-Shape Pickup?

With Tesla products, they arrive late or horribly late. But when they do arrive, they surprise and delight, and they create a cadre of loyal followers, sort of like Apple Moonies and Bernie Bros. (We won’t even begin to rank them for sense of humor.)

Most recent is the Tesla Cybertruck pickup, a vehicle clad in stainless steel and shaped like a wheel chock. Others are working to deliver electric pickups, including Ford, GM, Rivian (which is supplying technology to Ford), and Bollinger. With pickups, range will be important, and Tesla’s ability to squeeze more miles out of every thousand pounds of battery could be a big advantage.

We’ll have to see how Tesla fares with the Tesla Semi. Electrification makes sense for drayage hauling (coastal port to warehouse 25 miles away). Adding enough power to take an 80,000-pound tractor and trailer 500 miles adds battery weight that reduces cargo capacity. Putting megawatt chargers for each of 100 trucks at a rest area means building a power plant sized for a small city.

Production-line quality hasn’t been Tesla’s strong suit, but it’s getting better. Broadly, we’re seeing Tesla does well by having more hits than misses in products.

Pollution and global warming may drive demand (or requirements) for more EVs. (Photo: Alfred T Palmer, Library of Congress)

Bottom Line: The World Needs EVs

EV sales are soft in the US and in the world. Where penetration is high (Norway) it’s because of government incentives for EVs and disincentives for combustion-engine vehicles. 2019 US sales actually fell 9 percent, to 330,00 sales for pure EVs (no plug-ins), or 2 percent of sales. Worldwide sales were estimated at 1.9 million, down 4 percent. That’s now. Add plug-in hybrids and market penetration might double. It’s still small.

Meanwhile, China’s middle class is showing unhappiness with dirty air. The European Union has talked about banning combustion engine vehicles within two decades. Much of the world has concerns about climate change. Every year, fewer people say climate change is a hoax.

Energy used for transportation is about a quarter of all consumption in the US, according to the US Energy Information Agency, and 96 percent of that locomotion comes from petroleum. This is why EVs have a stronger future that combustion-engine cars. And this may be the primary reason Tesla stock keeps rising, as mentioned above: the belief that there will need to be more electric vehicles over our lifetime. And Tesla is the purest stock market play to benefit.

There are plenty of times in company history when a one-year in-and-out investment in TSLA would have cost you big bucks. Right now, only Tesla short-sellers have been burned.

Be Careful Betting on Car Stocks

This is a tech site, not an investing site. So we’d offer the obvious insight that returns of 23 percent and 25 percent the last two years – calendar 2018 and 2019 – are phenomenal for all but the savviest, or greediest, investor. We’d point out that some of the late 2019/early 2020 gains came at the expense of short-sellers who believed TSLA was overvalued. People such as investment managers James Chanos (Yale) and David Einhorn (Cornell), probably smarter than you, or me, who borrowed money to go short and control high-priced Tesla stock they’d give back when they bought the same stock cheaper later on. Chanos last fall had described Tesla as “fundamentally unprofitable” and Einhorn had said “the wheels are falling off [Tesla] – literally” after some poor safety reports. Profitability and safety/recalls are the kinds of near-term issues that hurt mainstream automakers such as Ford, which had a horror show getting its Chicago factory to run right as a new generation of Ford Explorers and Lincoln Aviators were coming to market last year. For Tesla, it was water off a duck’s back.

Be wary of stories that talk about big gains from time X to time Y. There were other times when Tesla languished after a nice run-up and you’d have gone nowhere. Example: Tesla ended 2016 about where the price was at the beginning of 2016. (Off 4 percent.) It climbed nicely and peaked at $383 in June 2017 … then fell and didn’t get back to that level until a week before Christmas 2018. Tesla stock is volatile perhaps less from what Elon Musk says and does, but because Tesla and Apple are two of the most-shorted stocks and as much as one in five shares are held by investors going short, meaning they’re hoping to profit when the share price goes down. Some of this year’s early gains in TSLA value came from short-sellers who had to overpay to cover their short investment positions before the price when higher and they got clobbered even worse.

In other words, be mindful of point four further above when investing: “The month-to-month miscues don’t affect Tesla’s long-term future.” So far, at least.

The Standard Poor 500 stock index historically returns about 10 percent per year. Subtract 2-3 percentage points per year for inflation and most people should be happy with the resulting 7 percent, which doubles your after-inflation return in 10 years. Tesla’s 2018-2019 annual return of about 24 percent would need a little under three years to double at that continued rate. Instead, it took six weeks.

It is a certainty Tesla cannot continue growing its stock price at the current pace. Tesla is currently worth $165 billion (market cap). The value of all stocks in the world (effectively the value of every public company) is $75 trillion, 425 times as big. If Tesla stock doubled every year, by 2030 Tesla would be worth as much as the rest of the world.

Non-Tesla EV Stocks

If you want an EV or autonomous-vehicle play in the stock market, promising newcomers such as Rivian are privately held. You can also invest in suppliers such as these (suggested by Barron’s):

  • Amphenol Corporation (APH)
  • Aptiv PLC (APTV)
  • BorgWarner Inc. (BWA) (author conflict-of-interest disclosure: I worked in a BorgWarner timing-chain factory in college; no current affiliation)
  • Delphi Technologies PLC (DLPH)
  • Magna International Inc. (MGA)
  • TE Connectivity Ltd. (TEL)

Or you could play the long game: Put part of your money in a mutual fund that tracks the tech sector broadly. Don’t touch it until your kids go to college or you retire. Hands-off and you’ll be well-off.

Now read:

  • Tesla Teardown Scares Competitors: ‘We Cannot Do This’
  • Tesla Remotely Removed Autopilot Features from Used Model S After ‘Audit’
  • Phone App Unlocks Rental Car, Then Strands Driver in California Boondocks