The company which has the world enchanted with the future it promises.
Disclaimer. The opinions stated in this article are my own and are not to be considered as financial advice in any capacity. The personal opinion should not be taken as a recommendation to buy, sell or hold any particular stock. For financial advice, contact an authorised intermediary.
If one’s exit horizon is greater than 5 years, does Tesla (TSLA) remain a Golden Goose? In this long-term game Tesla has the fundamentals to dominate a U.S. automotive market of which they currently hold only 1.3%. This sentiment would seem to be underlined by its stock market valuation which has infamously quintupled in 2020 despite experiencing large fluctuations throughout the year.
Although analysts’ valuations of Tesla and its assets suggest the stock is massively overpriced (currently trading at 411.76 at the time of writing) the scale of the market and the preparedness of Tesla’s senior management is beginning to show profitability, reassuring investors that the price still provides value to their shareholders. As the EV market progresses and automation comes into play along with greater environmental regulation, Tesla is incredibly well positioned to efficiently become one of the largest companies in the world, even outgrowing the automotive market over which they have recently been granted the crown.
“The luxuriousness, even gratuitousness, lies at the centre of their success.”
Tesla records 60% of all US Electric Vehicle sales. They have gained this dominance through their remarkable growth over the past few years, using a business model which curated an image of innovation through its top-down development which began with the Roadster in 2008. Original founders Martin Eberhard and Marc Tarpenning wanted to create the long-distance, electric sports car which they could not find in the market. The Roadster was featured in the 2006 Time magazine as the best Transportation invention of the year, asserting its image as a piece of pioneering and, most importantly, luxury technology. Tesla utilised the romance of the car industry to create notoriety through their high-end sports vehicle before traversing down the pipeline into road cars for the average working American. The luxuriousness, even gratuitousness, of their products has never been lost however, and lies at the centre of their success.
The Model S Sedan began this movement down the food chain, which continued with the Model 3 and the Cybertruck, an ambitious move into the extremely deep 4x4 American market. From the beginning, Tesla has built its business model on longevity rather than profitability. Much like the model utilised by Amazon, the emphasis has been on development, research, innovation and ultimately growth. Management made a prediction that the EV industry was one day going to dominate, and its early adoption coupled with it’s lack of baggage which the other legacy car manufacturers are burdened with has created the situation whereby the company is primed to continue to grow rather than burst.
From the very beginning, Tesla’s real differential has been the technology which lies beneath the already iconic bodywork. Tesla’s original lithium battery allowed them to create the first electric car which could meet the consumer’s needs. The rather bizarre “battery day” held in September of this year was a true display of the company’s ability to romanticise even the most mundane of agenda, unveiling technological advancements in their battery technology which will enable them to provide faster charging times and longer lasting battery life — the key to the EV. This too is a central focus for Tesla Energy, a secondary programme which is manufacturing domestic batteries designed to store energy locally to power homes with renewably sourced energy.
The cornerstone of Tesla’s status as a growth stock however, lies in management’s willingness to continually reinvest revenue back into the growth of the business. They are not preoccupied with quarterly profits but are able to rely upon faithful investors who believe in the longevity of the company. Such is the imaginative power of Tesla they have been able to entice extremely long-term core investors who are authentically growth orientated, allowing Tesla to escape the pressures most companies face from shareholders whenever quarterly reports are published. Even last month when Tesla announced quarterly earnings of $331 million on $8.77 billion revenue, the first profit made in some time, Musk also announced that he is continuing to expand manufacturing capabilities with construction in Austin, Texas and Brandenburg, Germany. Rather than allowing profits to steady, they are incredibly motivated to continue to innovate.
Perhaps this is because of Musk’s egotistical dream to get to Mars. To do this, Musk admits the innovation of Space X and Tesla will have to continue to grow ‘exponentially’ and that any projections of success within his lifetime are currently unrealistic. Perhaps. But perhaps he is aware that the generation of business management we are living in cares less about asset value and profit generation than it does about research and innovation. The extreme moats that rapid scale from huge sets of computational data allow for the tech sector have welcomed a new age of operations, relying on innovation itself to maintain shareholder faith. If he can do this, perhaps Amazonian levels of dominance are possible.