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Tesla’s Apple moment

Oct 31, 2023

Good morning! 👋

Futures are trying to claw their way higher this morning, and that’s great. I, for one, am tired of all the red ink.

Don’t get me wrong, though, I actually like what I’m seeing.

All this bouncing around is a good sign that the markets are working normally... or at least as normally as they can right now.

Buying and selling is absolutely critical for a push higher because all the back-and-forth a) weeds out the impatient money and b) replaces that with strength, meaning strong buyers.

That’s why it’s critically important to continue to focus on the best while ignoring the rest, a point you hear me make often.

Speaking of which…

Let’s talk Tesla today.

I’m getting a lot of questions from anxious investors around the world:

... Is the company still viable?

... Is it a car company?

... Is it worth buying?

Yes.

I don’t mean to make light of the situation or your fears if you’re concerned... but please, get a grip.

The stock has returned 16,913.79% since inception, and you’re worried about it dropping 18% since earnings??!!

I don’t mean to be disrespectful, but if this is the way you feel—and I get why you might—you really ought to take a serious look in the mirror.

If you’re a trader, fine. That’s one thing and totally cool, in which case there are any number of ways to play Tesla using put options, inverse ETFs, and the like. Volatility is your lifeblood, or at least it should be.
If you’re an investor, that’s different. The current drop should have you drooling, not cowering in fear. The question you want to be asking yourself is where the company is going and what that looks like when it gets there. If you’re skittish, you can buy smaller lots or even a few shares at a time. Or use call options, LEAPS, funds, dollar cost averaging, value cost averaging… there are literally dozens of ways to stay in the game and control risk at the same time.

The short-term lottery ticket mentality that has taken over Wall Street has done a lot of damage to investor psychology and, frankly, is causing loads of otherwise rational people to do completely irrational things.

What’s happening with Tesla stock at the moment is not unusual.

Innovators frequently get sideways with the markets. People forget that Apple, Microsoft, and Amazon have all fought for their lives over the years. Whether that’s convenient or simply deliberate, I don’t know.

Disruptive technology is always the subject of big debate.

That’s just how it works.

It’s also why the financial markets work the way they do. Anything you see as an investor that other people don’t is an opportunity if you have the moxie, the understanding, and the smarts needed to step in when everybody else wants to run the other way.

Back to Tesla…

Media outlets are reporting widely that investors have sold off because Musk warned that high interest rates were pressuring the company to keep prices lower.

Only he didn’t.

What Musk actually said was that high interest rates fundamentally reduce affordability because high rates make it more challenging for consumers to buy.

Then, yesterday, Tesla got shellacked after supplier Panasonic said that it was reducing battery production in Japan, which, to the uninitiated, is more proof of diminishing demand for EVs.

That’s not quite right either.

The company cut battery production in Japan and its annual forecast by 15% because demand shifted to Tesla models priced below the $80,000 threshold eligible for tax incentives, which in turn hurt the Japanese supplier’s profitability in the September quarter. North American EV battery demand is expected to pick up.

Personally, I love situations like this.

I’ve been involved in global markets for 43 years, and if there’s one thing I’ve learned above all else, it’s that the herd is usually wrong.

Moreover, if I had a dollar for every time somebody told me Tesla was dead and buried over the past decade, I’d probably own half of SpaceX along with billionaire Ron Baron, whose 17.5 million shares are worth $1B+ today, according to CNBC.

Three Reasons Tesla Bears Are Still Wrong

First, Tesla is not a car company, and any investor who thinks that’s the case is barking up the wrong tree. That’d be like calling Apple a cell phone company.

MyPOV is that Team Musk is one of the most significant AI-tech plays if you’re willing to look 3–5 years down the road. Not everyone is, and there’s nothing wrong with that. Sure, the attention is focused on cars at the moment, but it is not a car company per se, so don’t make the mistake of applying “car tech” metrics to it.

Second, the real monetization opportunity will include data that’s not even remotely recognized yet by investors—and most Wall Street pros, for that matter.

The supercharging network, for example, may be a multibillion-dollar annuity bringing in perhaps as much as $20 billion or even $25 billion a year by 2030, or roughly 5–7% of Tesla’s total revenue if my calculations are on point. Perhaps more, considering it’s on the way to becoming the de facto global standard.

Then there’s the usage case. People are accustomed to seeing and thinking about Teslas as personal vehicles, but that’s going to change when we’re talking about trucking, warehouse machinery, logistics, and all sorts of other things that are not even defined as “vehicles” today, a decade from now. Autonomous driving isn’t even the half of it, frankly.

And third, when you adopt that framework and you start looking at Tesla from the vantage point of where the world is going in 5 to 10, maybe 20, years as opposed to where it is today, you will see all kinds of new services ranging from battery technology to storage to charging to finance to insurance, solar, energy trading, and a whole lot more.

The sum of Tesla’s parts isn’t even remotely being recognized at the moment, but there is no doubt in my mind that it will be. I believe the company is 4–6X larger than it is today and that the data, energy, and AI components will more than triple.

The situation reminds me very much of Apple, which was able to monetize a similar service set, at which point the company’s valuation soared from billions to trillions of dollars.

At the end of the day, I can’t tell you to buy Tesla stock—that’s a decision you’re going to have to make based on your risk tolerance, objectives, and circumstances (none of which I know).

What I will tell you is this.

The question you want to answer right now isn’t whether or not to buy Tesla today... but how you’re going to feel a decade from now when somebody asks you if you did.