“Worrying that the future of Tesla will be affected by the falling price of gasoline is like thinking Henry Ford should have concerned himself with fluctuations in the price of hay”.
Yes, I’m a Tesla bull. I’m not particularly bullish on the stock short term, however, although I do think the company will eventually be worth hundreds of billions of dollars.
Before I get into that, let’s talk technicals. The stock is not currently oversold according to my indicators, and if $170 does not hold, then the wheels could come off and it might tumble to $140, which would be the ideal buying spot (This analysis and these targets are based on the Volume Profile indicator I use and discuss in a daily column for TraderPlanet.com.).
But technicals are boring, compared to understanding the fundamental mission of Tesla, and why I consider the stock to be an attractive long-term investment.
THE FRENZY & THE FACTS
I became a Tesla True Believer after researching Elon Musk and then taking a test drive in a Model S-18 months ago. Tesla test drives are jaw-dropping experiences, and my first one was with the older, single-motor version.
I was late to the TSLA party. The punch bowl was already low and the investor mood correspondingly high. Even so, the frenzy persisted a while longer and shares more than doubled from where I got in.
All the while, professional skeptics like Doug Kass decried the mania, while others, such as I, thumbed our noses at such dense literal-mindedness. Couldn’t they see the New Age dawning right before their eyes? The period 2013-2014 was a biblical period in investing history, with Musk being vilified for the irreverent apostasy of his claims and the sheer audacity of his vision, while a steady stream of converts quietly placed orders and were content to wait months or even years. That’s the power of faith.
THE GAAP GAP
Early on, I compared Tesla stock with AAPL and derived the same future valuation as Musk recently did: $700 billion in a decade, give or take. I still hold to that target (Somewhat religiously, I admit. It’s fun to be dogmatic once in a while.).
But this projected valuation is not something I simply made up. I believe that the argument for viewing Tesla as a disruptive company is entirely valid. And, as such, its value should be measured by a different standard than Generally Accepted Accounting Practices (GAAP).
There’s nothing “generally acceptable,” i.e. middle-of-the-road, about Musk or the products he and his team are creating. Tesla is a revolution hidden in plain sight and to measure it, one needs a new ruler.
TESLA DEFINED
What sort of company is Tesla, really? Some people think Tesla is a car company, while others think of it as a nascent battery company that happens to make cars on the side. To answer the question, let’s look at how Apple came to define itself.
Is Apple a computer company, a telecom-hardware company, or a diversified, tech company? I’d say, none of the above. Steve Jobs frequently quoted Henry Ford to illustrate the corporate culture at Apple,
“If I had asked people what they wanted, they would have said, ‘faster horses.’”
Jobs directed his development teams to focus on one thing: the customer experience … and to delve into it more deeply than the customer ever could.
Jobs wanted to give his customers more than they ever knew they wanted. Musk is similarly focused on bringing to Tesla’s customers just one thing – a mind-blowing experience, from start to finish.
Unfortunately, if you’ve never taken a test drive, you won’t know what I’m talking about. But worrying that the future of Tesla will be affected by the falling price of gasoline is like thinking Henry Ford should have concerned himself with fluctuations in the price of hay.
THE NETWORK IS THE CAR
In 1984, John Gage, an early employee at Sun Microsystems, coined the phrase, “The network is the computer.” It’s still true today, except the form factor has changed. The cell phone is replacing the computer as the access point to the network.
If we apply this construct to the transportation industry, I think we can see more clearly what Elon Musk is really doing.
Originally, a car was a replacement for a horse and buggy, and we still measure its engine power in those quaint terms. I would argue that the Model S is not a car in the conventional sense of the term (a mechanized horse), at least not in Musk’s mind. Rather, it represents the first iteration of a new paradigm in which transportation itself becomes truly networked.
I believe Tesla is a networking company and … the network is the car. Tesla is on a mission, not to build cars, per se, but to network transportation. Eventually you will be able to participate in the awesome experience of this network whether or not you own a Tesla (Ownership is very 20th Century.).
The Superchargers will be the network hubs, where if you need a Tesla, one will either be waiting for you, or one will drive itself to your present location.
Because the Tesla car has so few moving parts and can be updated over the Internet, a vehicle body is likely to last 1-million miles or more. This is the end of planned obsolescence. The networked car becomes perennial because the network is perennial.
This is how the transportation industry is about to be disrupted. I would consider investing in the disruptor.
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