Tesla stock hit another new record high Monday… up a staggering 1,200% since the company went public in 2010.
Still, the bears can't give up – not the least of whom is legendary hedge fund manager David Einhorn, who roars that the stuck is in a bubble and on the verge of crashing.
I can't blame him. I'd be bearish, too, if I were the "Mayor of Shortsville" and talking my own book… and if I thought Tesla was a car company.
Tesla Should Fail… but Here's Why It Won't
Every conventional metric in the book says Tesla Inc. (Nasdaq: TSLA) is a bust. Earnings per share are negative, the beta is high, and there's a sea of red in the numbers.
Compared to other car manufacturers, production is basically nonexistent – if that's what you call the 76,230 vehicles the company sold in 2016 – when compared to the 17 million sold in each of the last two years in the United States.
By comparison, General Motors Co. (NYSE: GM) sold more than 3 million vehicles, while Ford Motor Co. (NYSE: F) sold more than 2.5 million.
Adding fuel to the proverbial fire, most industry experts have major doubts about Tesla's ability to compete against major names like Honda, Nissan, Volkswagen, and Audi when those companies finally field electric cars.
First-mover advantage only lasts so long, they reason. Besides, goes the alluring argument, Tesla's operating loss was $15,000 per vehicle until very recently. Then there's the fact that the company's also hemorrhaging cash to the tune of $5 billion per year.
Many of those same "experts" are worried about Elon Musk's ability to manage the company. Among other things, he's tied up in the space race, artificial intelligence, the Hyperloop, and the "toxic" acquisition of Solar City.
When, in fact, that's the whole point.
Tesla is not just a car company.
Tesla Is a Utility Killer
The fact that Musk is involved in so many things is precisely the attraction here and why savvy investors would be wise to pay attention.
Musk wants to redefine the electric grid and, with it, the world's energy supply.
Not one in 100,000 investors understands this, which is why so many have been left behind already – and why so many more will be if they don't get on board.
Tesla cars are nothing more than a ticket to entry in Musk's mind.
The real prize is controlling electricity from "soup to nuts," to borrow an old expression.
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Let's start with the Gigafactory.
Industry analysts have long maintained they're just for lithium-ion battery production and just for Tesla's own use. In reality, each Gigafactory may be able to supply power for 500,000+ vehicles a year.
Clearly Musk is thinking beyond his own cars.
In fact, he recently hinted that just 100 Gigafactories would have the capacity to meet the demand for lithium technology sufficient to power the world. New York is banging on his door to build one, as are Chinese leaders who are reportedly eager to start construction.
Just last Friday, Elon Musk spoke at the 2017 TED Conference where he teased Tesla's forthcoming electric semi-truck and hinted that the company will likely announce four new global Gigafactories later this year.
Then there's Tesla's Powerwall.
Released in 2015, the Powerwall uses – ta da – lithium-ion technology to make storing home energy more affordable, powerful, easier. and safer than traditional deep-cycle batteries. We're looking into one for our own home and at $3,500 a pop, I like what I see, because the thing can be used to store energy and then feed it back into the house during power outages or when I don't need to draw much from the local utility.
And then there's Tesla's Solar Roof.
The company already has four designs based on current roof styles and plans on releasing two of those this summer. Projected installation costs are less than the cost of a regular roof… and that's before energy production.
Never mind Einhorn's view nor conventional metrics. The real equation when it comes to Tesla looks like this…
Like I said… from soup to nuts.
The way I see things, you've got two options.
OPTION No. 1: You can ignore everything we've just talked about today and continue doing what most investors have been doing, which is either nothing at all or waiting in disbelief for a pullback that may never happen.
OPTION No. 2: Take action and do something to build Total Wealth now, while you still have the chance.
Admittedly, Tesla stock isn't cheap… but don't let that stop you.
We've talked many times about Total Wealth Tactics you can use to your advantage in situations like this.
- Dollar-cost average into the stock by buying a little each month and eventually building up a sizable position. Doing so harnesses the natural ebb and flow of prices so that over time you'll wind up with higher profits as the company matures and more investors pile in as the price goes up.
- Buy "deep-in-the-money" LEAP options that give you a strategic alternative to owning the stock at a fraction of the cost yet still allow you to participate in the appreciation ahead.
- Use a lowball order or sell put options to capture a pullback if and when it happens as a means of capturing volatility others fear.
Oh, and by the way, there's one last thing that nobody but me seems to have realized yet when it comes to Tesla: It's a utility killer.
Imagine what happens to all those juicy utility dividends that so many income-starved investors depend on when Team Tesla renders conventional power plants obsolete.
They'll vanish just like your electric bill.
I'll be following the story closely as it develops and, when the time is right, you'll have a list of the most at-risk utility companies for you to capitalize on.
PS: Moments after I filed this story, news broke on Reuters that "Traders short selling Tesla's (TSLA.O) soaring stock have lost $3.7 billion this year, eclipsing the combined losses of traders shorting Apple (AAPL.O), Amazon.com (AMZN.O) and Netflix (NFLX.O)."
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The post The Real Reason Tesla Stock Keeps Going Up Has Nothing to Do with Cars appeared first on Total Wealth.
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About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.
I told one of the Tesla engineers when I was visiting the Gigafactory last December and January that the industrial "powerwall" that they had just delivered to an utility in California would eventually dwarf the car business. It can actually start to make wind and solar practical and allow for them to supply some base-load to the grid. It could be an answer to extending the load capitally of major electrical transmission lines by equalizing cyclical loads over a 24 hour period. Also I showed PDF samples of what the proposed solar roof material looked like and she was impressed. A few years back our engineering society had toured a house that had been set up by a major chemical company to showcase their solar roofing product. My wife told them it would only sell in a limited market because of it's appearance from the ground. She was right, but she thinks that the Tesla roof products overcome the ugly of the other products. I am a recently retired electrical engineer who has worked in both the chemical & utility industries.