It’s an axiom of investing that the sure sign of a market peak is when the very last bear throws in the towel. Is that what we’re seeing, now that CNBC’s Jim Cramer has become a Tesla true believer?
Above: Advising on stocks, CNBC's Jim Cramer is popular but often controversial in his ever-changing views (Image: The Street)
No. First, Cramer is far from the last of the Tesla bears. In fact, he was never really a hard-core bear at all - he would be better described as a loud and lively skeptic. Second, if you believe that electric and autonomous vehicles are the future, then you should expect to see TSLA peak around the time the last gas-powered car rolls off the assembly line.
Jim’s stentorian and flamboyant delivery makes him a natural for television, and his huge audience probably includes a substantial number of people who don’t even care about stocks. If anything, his conversion is likely to influence many others to change their tune about Tesla. So, what led to this vaunted epiphany?
And an epiphany it is. One of Jim’s favorite bits of advice is to stay away from “battleground stocks” - those with vociferous bulls and bears, cult followings and charismatic leaders. TSLA checks all the battleground boxes, but somehow it has now earned his respect.
Never at a loss for words, Jim lists no less than ten reasons that he changed his mind.
Above: At 4 minutes and 45 seconds into this video, Cramer provides insight into his changing views on Tesla (YouTube: TheStreet: Investing Strategies)
In first place is what any stock pundit would consider an unanswerable argument: earnings. Tesla is projected to earn $5 per share in 2020, and $10 in 2021. “These are consensus estimates,” writes Cramer. “They are vetted and they actually may happen. That means it is a heck of a lot better than Ford (F) and GM (GM) when it comes to growth and growth is really all that matters when it comes to vehicles because no one else has it. No one.”
Cramer goes on to list several positive recent developments. As we’ve noted so many times here in the EVannex blog, the much-threatened competition from the legacy automakers simply hasn’t materialized. Elon Musk, for whatever reason, has settled down. “He’s no longer teasing the SEC. He’s no longer trashing the analysts,” writes Cramer. “He runs a good, thorough conference call, gives an occasional speech and is otherwise, I never thought I would say this, not controversial.”
The risk that Tesla would run out of capital, a clear and present danger just a few months ago, has receded. “If you have earnings estimates it’s pretty easy to raise enough money to make or do whatever you want,” says Cramer. “If Tesla is going to make even half of what the analysts say, it would be no problem to raise $5 billion at reasonable rates if needed.” For confirmation, Jim consulted “one of the most skeptical CFOs in the world,” who said, “the company could raise two billion dollars in a heartbeat.”
Tesla’s feat of building its Chinese Gigafactory in 10 months did not go unnoticed by Cramer. “As someone who has been involved in building even the smallest of factories, that’s astounding. That’s better than Intel (INTC), which I always regarded as the single greatest manufacturer we have in this country, and they can’t build them faster than 18 months,” he writes. “Intel had long been considered the gold standard when it came to greenfield factory build-outs.”
Above: Jim Cramer explains why he's changed his negative outlook on Tesla and he's now become a "true believer" in the company (YouTube: CNBC Television)
The recent spate of good news about Tesla’s accomplishments as a company has certainly been impressive. However, as so many others have, Cramer seems to have truly seen the light after experiencing the vehicles personally. His daughter, a “definitive non-car person” who had “never ever expressed even a whit of interest in a vehicle,” drove a Model 3 from Oregon to San Francisco, and called him in the middle of the trip to gush about the experience (she seems to have especially liked the flatulence feature). Later, Jim Cramer himself drove a Model X. “I have to admit I loved the whimsical nature and the handling. The gull wings were cool. They drive fantastic.”
What really sealed the deal, however, seems to have been the broken windows at the Cybertruck reveal. “The company introduced the pick-up truck, which I thought was ugly as all get out, and some actor threw a rock at its unbreakable window and it cracked [in fact, it was Senior Design Executive Franz von Holzhausen who smashed two of the windows with a metal ball]. I figured, okay, so much for that. Then we see the demand and it’s off the charts. That stunned me.”
Reasonable people can disagree, and over the course of its existence, Tesla has provided skeptics with some good reasons to be skeptical. Jim Cramer has shown himself to be a pragmatic and open-minded analyst who isn’t afraid to consider new information. “The facts changed and I changed my mind, too,” said he.
Cramer isn’t the only Tesla bear who has reconsidered in the light of new developments. Credit Suisse has long taken a pessimistic view of the California company, which it assigns a price target of $200. However, the firm recently noted that Tesla’s battery expertise gives it a key advantage over legacy automakers. Credit Suisse analyst Dan Levy visited Gigafactory 1 in Nevada, and came away impressed. “While we hold an Underperform rating on Tesla, we nevertheless believe it’s important to give Tesla its credit where due,” Levy wrote in a note to investors. “We believe Tesla is leading in the areas that will likely define the future of carmaking - software and electrification.”