Trading room Q&A Tuesday July 7, 2020
Q: Tesla at 1370. What’s going on? How did that happen?
Tesla stock price rationale
Let me just say I own two Teslas. I like the car. I like – the body is terrible, but comfort – I had a Lexus before the Tesla, and the inside of the car was a much better car. The car felt more solid, and I like the comfort factors in the Lexus more than in the Teslas. But the Tesla is a heck of a fun car to drive. I love it when some teenage kid pulls up next to me at a stoplight in a pickup truck. It’s incredible how fast I can blow them away. So even though I’m an old guy. It’s fun to shut down the young punks. It’s a really, really great car.
Tesla the most valuable company in the world
Tesla is right now the most valuable car company in the world, more than Ford and General Motors combined, more than Fiat, more than Mercedes, more than Honda, more than Toyota. It’s the single most valuable car company in the world. But this is not due to cars. They cannot sell enough cars to justify this kind of a price earnings ratio or that market cap. They just cannot sell enough cars. So this has nothing to do with what Tesla is doing. It has to do with what traders think Tesla might do.
Monthly chart, we’re just going parabolic. All along the way, every now and then they put some clown on TV saying, “Oh, Tesla, they’re going to go bankrupt.” People said similar things about Netflix and a little bit about Amazon. When I see those people, I think they’re fools. I think Tesla is an incredibly great car. It’s different from all other cars. It’s a fantastic car. They’re not going to go bankrupt.
Great products, great companies
Amazon, when idiots were saying Amazon was overpriced at 300, I’m thinking, what are you talking about? I buy all kinds of stuff on Amazon all the time. All they have to do is raise their prices 1% or 2% and then they’ll be making a ton of money.
And Netflix, how can you possibly be saying Netflix is going to go bankrupt? They have a great product and they’re the market leader. I remember – this is the monthly chart on Netflix – I remember back over here and up through here, all through Netflix, there were people on TV saying, “It’s going to go bankrupt. Disney’s going to put them out of business.” You’ve got a great product and you’ve got a customer base that understands you have a great product.
Same is true with Tesla. If you’ve ever driven one of their cars, it’s an experiential thing. It’s hard – it’s like trying to describe a smell or a sound or a color or anything sensual. The words cannot convey adequately what the experience is. But for me, I like Tesla a lot. I like the car a lot. As I said, I bought two. I bought one for my wife.
But the car, it’s not the value of the company, the market cap of the company is huge. I don’t know what it is now. It’s probably in the $200 billion price area. There’s no way they can sell enough cars to justify that, but people are wondering, are they going to do things beyond cars? For example, will they take all Ford’s business for the F-150 trucks? But even if they took all Ford’s business ,and all the 18 wheeler business, and every car in the world, that price is way too high. If you put together all the car companies in the world, it’s too expensive. The market cap is too big.
Innovation drives growth
So why is it up there? Obviously, a lot of it is emotion, but a lot of it is also people thinking that the car is an innovator, the company is an innovator, and that they’ll keep innovating and that will make them increasingly valuable, and they will do things that are unimaginable now. It’s kind of like Apple 10-15 years ago. They came out with the – I guess it was 15 years ago, maybe 20 years ago, they came out with the iPods, and it was revolutionary. Then they came out with the iPhones and the iPads, and people bought because they just expected new ideas, things that nobody else had thought of before.
That’s why Tesla is doing this. People think that they’re going to come out with ideas that no one has thought of before. And what are those ideas? How am I supposed to know? No one has thought about them yet. But maybe self-driving taxis. Basically a totally automated Uber. They have talked about that. That will happen. And then maybe batteries that, instead of getting 200 to 300 miles per charge, you can get 1,000 miles per charge, and maybe the battery, instead of lasting 200,000 to 500,000 miles, it’ll last a million miles. They’re talking about that.
Just think about it. If you have a car and the doors and windows – they’ll wear out eventually. The tires will wear out. But if you think about the motor in a Tesla, it’s basically like a power drill, a big power drill. How often do you buy new power drills? Once every 30 years or something? The motors, the electric motors last forever, and the Tesla motor is going to last a long time. If they get a battery that can last a million miles, then Teslas are going to last a million miles. People will be buying Teslas with 800,000 miles on them, thinking that they can get another 100,000 miles.
Right now if you’re buying a used car and you can get 100,000 miles out of it, you’re willing to pay a lot of money for that used car. If you’re buying a used car and expecting 20,000 miles on it, you’re not going to pay much. But if you think you might get 100,000 to 200,000 miles on it, you’re going to pay a lot. So the resale value of Teslas is going to go up. That’s going to support the price of Teslas. The price of Teslas will go up.
If you buy a Tesla 3 or 4 years from now and it has a million mile lifetime to the battery, Tesla is going to charge $10,000 more, even though it might cost them $1,000 more to make. So that’s tremendous profit potential.
What happens if they finally figure out how to do the full self-automation, self-driving? I have self-driving on both of the cars. I don’t think it works all that well, and it certainly does not work all that well on city streets.
I went through a roundabout about a month or so ago, couple months ago, with one of the cars, and I had it set to go at the speed limit, and the car approached the roundabout and it would’ve just run right up in the middle of the roundabout had I not grabbed the steering wheel and turned it.
So as a driver, I can see the roundabout and I know you’ve got to turn right when you get to the roundabout. But the stupid car didn’t realize that. So right now, the self-driving is okay. It’s entertainment, but it’s not all that good.
I believe at some point in the next 2 or 3 years, it’s going to be so good that people will fully self-drive and do very little personal driving. At that point, all of a sudden you’re going to get driverless taxis, right? Uber, Lyft, they’re trying to do the same thing. Google is trying to do the same thing. But Tesla is in the best position to do it. So pretty much all the taxis in the world, all the Ubers in the world, Lyfts in the world, it’s all going to go away, and it potentially could all be Teslas. So they have another big income stream there.
As I said, this is the stuff that people are talking about now, and this stock chart is because people think that they’re going to come up with other things. That’s what is going on here. People are thinking that they’re going to succeed in all of the things that I just said, and they will come up with other things right now that nobody is thinking about.
Tesla in the home and beyond
I don’t know if they’ll do stuff related to the house. I don’t know if they’ll expand beyond – maybe they’ll make air conditioners for the house. Maybe they’ll develop battery packs that are so big that you can store 2 or 3 days’ worth of electricity in your house and never have to worry about a power outage. Maybe you can buy five or six battery packs for your house and store enough electricity for 2 or 3 weeks. There are millions of houses in the United States, and how much would people be willing to pay to have a 100% guarantee of never having a power outage again?
So the solar panels, you generate electricity, and you can create tremendous stores of it. Cities, governments, they will – if Tesla can make huge battery packs, governments, countries, everybody’s going to buy it. I think there’s a lot of potential there. Obviously, given what we know today, this is crazy. You have an overbought market.
This is the daily chart. Here’s the weekly chart. You have an overbought market, and it’s just rallying in an extremely unsustainable way. But ultimately, I don’t see why anybody would not buy it.
It was interesting when the market was down here at 200 and Musk was joking it would go to 420, the marijuana thing. He smokes marijuana. And everyone kind of thought he was just stupid, that why would it ever go to 420? Well, look what happened with the pandemic crash. It tested 420. Tested 400. So 420, 400 was resistance, and now it’s support, and now this area is support, 1,000.
But I gave a very long answer regarding Tesla, but right now, people are betting that it’s the new Apple. Apple was the great innovator, and Apple still is a great innovator, but their product line does not overlap with Tesla. Tesla has the potential of being absolutely huge with those batteries. If they can do something spectacular with those batteries, it will change the world. The electric car is changing the world, but not everybody will buy an electric car. But if the entire power system of the world switches over to have these batteries all over the place, that will change the world. It could easily justify Tesla at 2,000, 5,000, pick some thousand number, but some big, big number.
All right. Hope everybody has a good night.