Tesla Inc. (Nasdaq: TSLA) is one of those companies that grabs a lot of attention - and rightly so. It is led by Elon Musk, a true visionary, who is developing electric cars, solar energy and, through another company called SpaceX, even the plans for sending humans to Mars. The "cool factor" here is astronomical.
So why do people still think of Tesla as a car company, especially when it comes to Tesla Motors stock?
Even the experts who slice and dice the stock market have it dumped into the automaker sector with rather mundane consumer goods makers such as General Motors Co. (NYSE: GM) and the slightly more upscale Daimler, maker of the Mercedes-Benz brand.
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Call me jaded but even a sleek Mercedes convertible cannot compete with being on the cutting edge of a whole new energy production industry that Tesla has with its lithium batteries.
Automobiles are the least of the company's importance.
Tesla Motors stock sure does not trade like an automobile stock, either. Its price/earnings (P/E) ratio is 52, which is what we'd expect to see for cutting-edge technology stocks. GM and Daimler have P/E ratios in the single digits. That means the market is willing to pay a lot more for Tesla stock because of its promise to pay off big down the road.
Of course, a P/E ratio is only part of a stock's story, but it does suggest quite strongly that Wall Street is confused. Pundits call Tesla a car company, but the market prices it like the high-tech company it really is.
That means savvy investors know what they are getting with this company...
What Every Investor Needs to Know About Tesla Motors Stock
Money Morning Chief Investment Strategist Keith Fitz-Gerald has been pounding the table for Tesla for quite some time. He says the bears continue to view the company as only a car company, when it should be viewed as a battery company.
As a car company, it garnered roughly a 0.4% share of all vehicles sold in the United States in 2016. Not much of a player.
But as a battery company, it can revolutionize several industries from utilities to power storage to transportation.
The company is building "Gigafactories" to produce lithium-ion batteries, and each can supply power to more than 500,000 cars per year. With Tesla selling just over 76,000 cars in 2016, clearly it's thinking well outside its own car production.
Indeed, Elon Musk recently said, "We actually did the calculations to figure out what it would take to transition the whole world to sustainable energy. You'd need 100 Gigafactories." And this month, he projected that Tesla will start work on up to three more to bring its total up to five.
That will require a lot of lithium, especially as the company moves into commercial and utility-scale solar, plus the energy storage business. The company already has storage farms in such places as Connecticut and Hawaii, all using lithium-ion batteries.
Now, Tesla is looking for similar projects in Argentina, where it will be close to a major lithium source.
Make no mistake, Tesla wants to redefine the electric grid with solar power generation and lithium-ion battery storage. That will be huge for the economy and for investors.
Tesla stock continues to defy the pundits - and the bears - with a greater than 120% gain since February 2016. Remember, the stock market as a whole started to rally at that time, and the Standard & Poor's 500 has nearly gained a respectable 30%. Tesla returned four times as much.
It is understandable that investors would be leery of buying after such a rally. Fitz-Gerald said there are two courses of action possible.
The first is to believe the bears and do nothing as you wait for the pullback that never comes.
The second is to slowly build a position in the stock by buying a little each month. This is called "dollar-cost averaging." When the stock dips in price, you buy more shares, and when it goes up, you buy fewer. This removes the risk of trying to decide the perfect time to buy. As the stock goes up, even with fewer shares, you will go up with it.
Tesla is a rule breaker. Rule breakers do not wait to let us comfortably buy their shares while they are busy changing the world.
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