Source: PaxForex Premium Analytics Portal, Fundamental Insight
When investors think about Tesla stock, they often assume it's about a company that will eventually dominate the auto industry.
To some extent, this is justified, because Tesla has changed the automobile industry in a way that only a handful of companies have been able to do.
But here's the thing: Tesla doesn't have to dominate the auto industry to be a big winner for investors. In fact, Tesla could not sell cars in conventional volumes and still become a major leader, and here's how.
Sure, it would be great if Tesla cars sold faster than conventional cars. But that notion doesn't take into account the fact that an automaker can sell well in a niche, and by profitable margins.
Here's a comparison that many investors don't take into account, and they should. Ferrari doesn't sell cars en masse, so demand always exceeds supply, resulting in overpriced cars, exclusivity, and, more importantly, margins.
Tesla has an impressive brand image, it is recording profitable margins that already exceed what the major automakers can dream of, and its richer target consumers are likely to suffer less from economic downturns.
Investors can look at the current bear market combined with Tesla's 70 percent decline over the past year, look at the current pessimism facing the auto industry, with rising interest rates and an uncertain economy, and look cautiously to the future.
Or seasoned investors can accept the pessimism and see it as an opportunity to buy stock in an automaker that may not sell mass-market cars and still be a profitable investment.
Consider that Tesla's Q3 earnings were up 56% YoY and EBITDA was up 68%. Tesla also continues to optimize production and scale up, while the electric car industry is expected to boom in the coming years.
Knowledgeable investors understand that historically when electric car sales reach 5% of new car sales in the country, they quickly accelerate. The U.S. industry reached this point a year ago, and it is now expected that electric car sales could reach 25 percent of new car sales as early as 2025.
Not only can Tesla increase its share of the EV segment in the coming years, but it can simply keep doing what it is already doing well: selling cars that look more like luxury Ferraris than traditional mass-market cars.
What Tesla has accomplished over the past decade is nothing short of impressive. Remember that history is full of failed automakers; in fact, there are nearly 100 bankrupt automakers. Still, even though Tesla has changed the game for electric cars and has a strong brand, it's possible that polarizing CEO Elon Musk could be a surprise to investors.
Whether you love him or hate him, no doubt Musk has a lot on his mind when it comes to running companies. Some investors may be put off by his antics or the possibility that he will be distracted by Twitter or running SpaceX, among other things. It's possible that Musk is just taking more heat at the moment because the stock is having a tough year, competition in the electric car industry is growing, and the auto industry as a whole is facing economic uncertainty and rising interest rates.
It's also possible that some investors are just tired: "I support Tesla 100 percent, [because] I believe in Musk and Tesla. But he's killing [shareholders] and Tesla. If I had known, I wouldn't have invested in Tesla," Leo Coguan, the third-largest individual Tesla shareholder, wrote on Twitter. Of course, emotional tweets should be taken with some doubt, but while Tesla has many positives, Musk is a kind of risk to consider when investing in the long term.
The current bear market and pessimism in the auto industry should not matter to long-term investors. It just gives savvy investors a chance to own stock in a company like Tesla, which can literally underperform in terms of sales and still remain incredibly profitable.
While the price is below 126.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 121.79
- Take Profit 1: 104.00
- Take Profit 2: 90.00
Alternative scenario:
If the level 126.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 126.00
- Take Profit 1: 147.00
- Take Profit 2: 165.00
