Investor's Corner
The Tesla Model 3’s defiance of TSLA critics and its EV market dominance explained
To state that Tesla (NASDAQ:TSLA) is a polarizing company would be an understatement. Tesla commands a strong following, comprised of avid supporters and passionate critics alike. This was particularly evident in the Model 3, a car that was declared a “lemon” by critics at one point, and a car that has become one of the most popular electric cars in the industry today.
The Model 3 has its own fair share of critics. Last September, high-profile TSLA short Jim Chanos declared that the Model 3 has inherent problems that make it a “lemon.” Seemingly in response to Chanos’ statement, the Model 3 dominated the US luxury auto market in 2018, and with its international rollout this year, the vehicle has also started making an impact in markets such as Norway and China.
TSLA investor @Incentives101, an economist with a background in macro research, stated in a message to Teslarati that Tesla’s vehicles, particularly the Model 3, defied several conventions when it was released. With its unique combination of uncompromising performance, efficiency, and a reasonable price, the Model 3 has become a vehicle that constantly defies critics every step of the way.
The economist explained that consumers purchase vehicles according to preferences that are subject to budget constraints. The buying process then becomes a matter of selecting which car is the best option within the confines of a budget. “Consumers preferences can be easily understood when there is data available i.e when they clearly show what they want. With a car or any good for that matter, consumers are basically solving an optimization problem. Hence, this is why advanced economic models — general equilibrium — are on essence an optimization problem,” the economist wrote.
There are many variables that consumers consider when purchasing a big-ticket item such as a car. Generally, there are no internal combustion vehicles that are as efficient as an electric car, but EVs prior to Teslas usually had worse performance and a higher price, which, in turn, discouraged buyers despite their lower total cost of ownership. Electric cars before the arrival of the original Tesla Roadster and the Model S also introduced a new constraint: range. Under these circumstances, it was not rare to see buyers who valued efficiency and/or are not price-sensitive selecting an EV, and those that valued performance and price opting for a petrol-powered car.
It is these very metrics that the Tesla Model 3 was able to completely address. Tesla refused to compromise with the Model 3, making the electric sedan a vehicle that is incredibly efficient with performance that matches the best that the industry has to offer. What’s remarkable was that Tesla was able to accomplish this while keeping the Model 3’s price reasonable. And this, according to the economist, has resonated with consumers. “When Elon Musk says it’s insane to buy something else other than a Tesla, it’s because it literally is. You can prove it with math,” the economist stated.
The researcher added that this is one of the key reasons why Tesla and the Model 3 have proven incredibly resilient despite the negative narrative surrounding the vehicle and the company as a whole. It is also something that is frequently misunderstood by mainstream analysts and the company’s critics alike. Fortunately for Tesla, consumers by nature are drawn to superior products, and this is steadily becoming more and more pronounced with the Model 3’s international expansion.
“Whenever you read experts saying that Tesla has a 10-year advantage, this is what it means. When the media and Wall Street compare Tesla to other OEMs, when they talk about units of cars vs. other OEMs, it really doesn’t matter. None of them can find an example in history when consumers have behaved as irrationally as what they’re implying. No matter how many hit pieces about Elon Musk or Tesla, how many stock downgrades, how many bear notes, consumers won’t care about it. We already know what consumers care about; it will be impossible to stop it,” the economist wrote.
Tesla stock has so far slipped around 32% this year, following a challenging first quarter and another loss in the second quarter despite record delivery numbers. By contrast, the S&P 500 has risen about 16.7% year to date.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.
Tesla (NASDAQ: TSLA) is being called “the biggest meme stock we’ve ever seen” by Yale School of Management Senior Associate Dean Jeff Sonnenfeld, who made the comments in a recent interview with CNBC.
Sonnenfeld’s comments echo those of many of the company’s skeptics, who argue that its price-to-earnings ratio is far too high when compared to other companies also in the tech industry. Tesla is often compared to companies like Apple, Nvidia, and Microsoft when these types of discussions come up.
Fundamentally, yes, Tesla does trade at a P/E level that is significantly above that of any comparable company.
However, it is worth mentioning that Tesla is not traded like a typical company, either.
Here’s what Sonnenfeld said regarding Tesla:
“This is the biggest meme stock we’ve ever seen. Even at its peak, Amazon was nowhere near this level. The PE on this, well above 200, is just crazy. When you’ve got stocks like Nvidia, the price-earnings ratio is around 25 or 30, and Apple is maybe 35 or 36, Microsoft around the same. I mean, this is way out of line to be at a 220 PE. It’s crazy, and they’ve, I think, put a little too much emphasis on the magic wand of Musk.”
Many analysts have admitted in the past that they believe Tesla is an untraditional stock in the sense that many analysts trade it based on narrative and not fundamentals. Ryan Brinkman of J.P. Morgan once said:
“Tesla shares continue to strike us as having become completely divorced from the fundamentals.”
Dan Nathan, another notorious skeptic of Tesla shares, recently turned bullish on the stock because of “technicals and sentiment.” He said just last week:
“I think from a trading perspective, it looks very interesting.”
Nathan said Tesla shares show signs of strength moving forward, including holding its 200-day moving average and holding against current resistance levels.
Sonnenfeld’s synopsis of Tesla shares points out that there might be “a little too much emphasis on the magic wand of Musk.”
Elon Musk just bought $1 billion in Tesla stock, his biggest purchase ever
This could refer to different things: perhaps his recent $1 billion stock buy, which sent the stock skyrocketing, or the fact that many Tesla investors are fans and owners who do not buy and sell on numbers, but rather on news that Musk might report himself.
Tesla is trading around $423.76 at the time of publication, as of 3:25 p.m. on the East Coast.
Elon Musk
Elon Musk affirms Tesla commitment and grueling work schedule: “Daddy is very much home”
The remarks came as Tesla shares crossed the $400 mark on the stock market.
Tesla CEO Elon Musk reiterated his commitment to the electric vehicle maker and its future projects this week, responding to speculation following his $1 billion purchase of TSLA stock.
The remarks came as Tesla shares crossed the $400 mark on the stock market, extending a rally fueled in part by Musk’s TSLA purchase.
Elon Musk’s nonstop work schedule
Amidst the reaction of TSLA stock to Musk’s $1 billion investment, Tesla owners such as @greggertruck noted that “Daddy’s home.” Musk replied, stating that “Daddy is very much home.” He then shared details of a packed weekend of work, which was definitely grueling but completely within character for a “wartime CEO.”
Musk did note, however, that he had lunch with his kids during the weekend despite his extremely busy schedule.
“Daddy is very much home. Am burning the midnight oil with Optimus engineering on Friday night, then redeye overnight to Austin arriving 5am, wake up to have lunch with my kids and then spend all Saturday afternoon in deep technical reviews for the Tesla AI5 chip design.
“Fly to Colossus II on Monday to walk the whole datacenter floor, review transformers and power production (excellent progress), depart midnight. Then up to 12 hours of back-to-back meetings across all Tesla departments, but with a particular focus on AI/Autopilot, Optimus production plans, and vehicle production/delivery,” Musk wrote in his post.
Wartime CEO
Wedbush analyst Dan Ives described Musk as operating in “wartime CEO mode,” highlighting autonomous driving and AI as a trillion-dollar market opportunity for Tesla. Musk reiterated this point late last month as well, when he outlined the several projects he is juggling among his numerous companies. At the time, Musk stated that he was busy with Starship 10, Grok 5, and Tesla V14. This was despite his notable presence on X.
With Tesla Master Plan Part IV being partly released, the company is entering what could very well be its most ambitious stage to date. To usher in an era of sustainable abundance, Tesla would definitely require a “wartime CEO,” someone who could remain locked in and determined to push through any obstacles to ensure that the company achieves its goals.
Elon Musk
Tesla analyst says Musk stock buy should send this signal to investors
“With Musk’s (Tesla stock) purchase, combined with the upward momentum for delivery expectations and robotaxi rollout, we are becoming more bullish.”
Tesla CEO Elon Musk purchased roughly $1 billion in Tesla shares on Friday, and analysts are now breaking down the move as the stock is headed upward.
One of them is William Blair analyst Jed Dorsheimer, who said in a new note to investors on Monday that Musk’s move should send a signal of confidence to stock buyers, especially considering the company’s numerous catalysts that currently exist.
Elon Musk just bought $1 billion in Tesla stock, his biggest purchase ever
Dorsheimer said in the note:
“With Musk’s (Tesla stock) purchase, combined with the upward momentum for delivery expectations and robotaxi rollout, we are becoming more bullish. This purchase is Musk’s first buy since 2020. To us, this sends a strong signal of confidence in the most important part of Tesla’s future business, robotaxi.”
Musk putting an additional $1 billion back into the company in the form of more stock ownership is obviously a huge vote of confidence.
He knows more than anyone about the progress Tesla has made and is making on the Robotaxi platform, as well as the company’s ongoing efforts to solve vehicle autonomy. If he’s buying stock, it is more than likely a good sign.
Tesla has continued to expand its Robotaxi platform in a number of ways. The project has gotten bigger in terms of service area, vehicle fleet, and testing population. Tesla has also recently received a permit to test in Nevada, unlocking the potential to expand into a brand-new state for the company.
In the note, Dorsheimer also touched on Musk’s recent pay package, revealing that William Blair recently met with Tesla’s Board of Directors, who gave the firm some more color on the situation:
“We recently participated in a meeting with Tesla’s board of directors to discuss the details of Musk’s performance package. The board is confident of its position in the Delaware case and anticipates a verdict by end of year. It does not expect a similar situation to occur under new Texas jurisdiction. Musk has the board’s full support, and we expect he’ll get more than enough shareholder support for this to pass with flying colors.”
Tesla stock is up over 6 percent so far today, trading at $421.50 at the time of publication.
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