Tesla Isn’t A Car Company

We have the luxury, the honor, of speaking to a lot of individual investors here at Alhambra. Whether they are clients or future clients (optimism is my default condition), the most common view of stocks is that they are overvalued and a fall – a large fall – is inevitable. And there is no stock that embodies that view more than Elon Musk’s Tesla Incorporated. It was once known as Tesla Motors but Musk changed the name in early 2017. There may never have been a more successful rebranding in the history of the world.

At the time of the change the stock traded for about $50 and it was expensive for a car company. Today it trades for $585 and it is not, as I have been told repeatedly by every Tesla bull I’ve encountered, an automobile company. Now, the rebranding did take some time, the stock basically a breakeven hold for investors from 2017 to 2020. In fact, I’d venture to say that even the Tesla bulls would be surprised to learn that if you bought the stock at the beginning of 2014 you would have still been looking for a profit in June of 2019. The company, according to Musk himself, nearly went bankrupt during the Model 3 ramp from mid-2017 to mid-2019, and the stock traded as low as $35.

But here on the cusp of 2021, the transformation from a car company to a vehicle for every investor’s dreams is complete. That mythical 2014 investor who bought around $36 and held on, is now sitting on an investment worth 16 times her original investment. The stock is no longer an expensive automobile stock, its peers are no longer Ford or GM or Daimler, whose stocks all trade for a fraction of sales. No, Tesla stock trades at a multiple of sales that puts even the best tech companies to shame. Of the FANMAG stocks everyone is so enamored with (Facebook, Apple, Netflix, Microsoft, Amazon, and Google), only one trades for more than 10 times sales (Microsoft at 11 times). Amazon, the stock all value investors have shunned due to its “insane” valuation is the cheapest of the bunch at just 4.7 times sales.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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