We all know TSLA stock has soared recently, but who can say exactly why? Theories aplenty are bouncing around via analyst letters and panel discussions. Loup Ventures believes that the recent run-up “has largely been driven by short sellers covering positions based on the emerging consensus that Tesla will stay in business long-term.”
Above: Tesla Model 3 at the Shanghai Gigafactory (Twitter: Ray4Tesla)
There’s no question that short covering has been a factor - the bears have lost another few billion bucks, and Elon and his fans aren’t shedding any tears for them (neither are the owners of Wall Street clothing stores, who are doubtless enjoying a run on new shirts). However, a short squeeze can only turbocharge an upward trend that’s already in motion - short sellers don’t cover their positions when a stock price is static or declining. What’s the fuel that got this rocket off the ground?
The proximate causes of the current climb were Tesla’s latest earnings report and the news that the Chinese Gigafactory is open for business. But neither of these events tells the whole story - Tesla has reported profits before, only to sink back into the red, and just because it's producing cars in China doesn’t mean it will see substantial sales there.
No, there’s more at work here - there’s a sense that Tesla has turned a corner, that the existential risk has receded, and that sooner or later, the company will realize its potential. And that potential is vast - in Loup’s view, it’s nothing short of “a business miracle.”
This miracle has been enabled by the fortuitous fact that the company has had no competition from the legacy automakers. “Tesla has nearly a decade head start in EVs because other automakers have under-invested in the space, giving the company deeper knowledge related to battery design, a charging network with greater coverage, a better user experience, and more advanced self-driving capabilities,” Loup writes.
Above: Loup Ventures Managing Partner Gene Munster forecasts what's ahead for Apple and Tesla; Tesla begins at 4 min 50 sec (YouTube: Bloomberg Technology)
These three “foundational advantages” are of incalculable value - they make a Tesla much more attractive to a potential car buyer than anything the legacy brands have to offer. Loup observes, as many others have, that range anxiety is the biggest roadblock to mass adoption of EVs in the near term. Someday, inexpensive long-range batteries will be the norm, but for the next ten or so years, Tesla’s superior battery expertise will make it unbeatable.
Likewise the vertically integrated Supercharger network. Tesla has almost 16,000 fast chargers in service worldwide, a network many times larger than any competitor, and the only one of any size owned by an automaker. Loup believes that, like batteries, EV charging “will eventually be commoditized,” but for the near future, “it represents a huge comparative advantage for Tesla…and it’s a compelling selling point when EV buyers are considering their options.”
A third ace in Tesla’s hand is its remote software updates, which give it a lucrative stream of future revenue. Want the Full Self-Driving software upgrade? Once it reaches its full potential, it will be a bargain at $7,000 per vehicle. “Tesla is the only car company that incrementally recognizes revenue on high-margin software as they roll out new versions and features,” writes Loup.
These are three powerful assets that Tesla has (there are more), and that no other automaker will be able to match any time soon. I believe that one big reason for TSLA’s impressive leap is that the latest wave of “Tesla killers,” so heavily hyped by the press a year or two ago, now looks like a fizzle. Jaguar, Audi and Porsche haven't measured up with their EV efforts thus far, and Tesla’s sales continue to grow. The underlying dilemma that prevented Detroit, Germany and Japan from mounting a challenge to Tesla hasn’t changed. Unless the legacy auto industry undergoes some sort of massive paradigm shift, $600 per share may someday be remembered as just the starting point of TSLA’s bull run.