The long-term case for buying Tesla (TSLA) is easy to make (or easy to argue.)
The company has created electric vehicle technology that delivers faster speeds, longer range, and greater efficiency than any of its emerging competitors. The company has done a superlative job of building out its global supply chain so that it has suffered less disruption due to raw material glitches or chip shortages than any of its competitors. The big long-term questions for Tesla are Can it drive costs out of its production system? and How long will it take for competitors to catch up with Tesla’s technology advantage? (Just for the record I come down on the “buy” Tesla side on these questions.)
In the short term the buy/sell/hold case for Tesla is more complicated.
There is, of course, the question of whether the economic slowdown in the United States, China, and Europe will cut into sales and by home much.
But in the shorter short term, there are three other questions for investors and traders to answer.
1. Will Tesla get a significant bounce out of the 3/1 stock split on August 24?
2. How many Tesla shareholders and potential shareholders have been alienated by the antics of founder Elon Musk?
3. Will the stock get its usual boost from AI Day, the second part of which for 2022 is scheduled for September 30?
Let’s take these one by one, okay?
First, the evidence–that is the market reaction to splits from Amazon (AMZN) and Alphabet (GOOG)–suggests that investors and traders can’t expect a big boost to Tesla shares from the split. Not on this market. It’s just hard to whip up the kind of over-the-top enthusiasm right now that would be needed to generate a big pop in the shares after the split. That said, the split certainly won’t hurt the stock price.
Second, I don’t think most investors care much one way or the other whether Musk tweets on Hunter Biden or about the SEC or life on Mars. What they do care about, I think, is tweets (and actions) that cost them money in the markets. And certainly, Musk’s tweet this week disclosing that he will sell an additional $7 billion of Tesla shares as a financial backstop in his lawsuit with Twitter fits this category. Musk last sold Tesla shares on April 28 and at that point, he tweeted, “No further TSLA sales planned after today.” Simply not true. Do Tesla shareholders feel pissed off enough to sell on this latest tweet? Tesla stock is down 19.5% year to date as of the close on August 9. But then, we are in a Bear Market and just about everything is down.
Third, I think Musk and Tesla have their work cut out for them at the September AI day. Tesla’s development of an autonomous vehicle has been hit with repeated negative stories in the last six months. Enough smoke that some investors are undoubtedly asking if there’s fire. That “fire” would be the possibility that Tesla’s self-driving system, built around multiple cameras and AI processing of that data, could be the wrong approach. (Most of the company’s competitors are going with LIDAR-based systems that used laser ranging-finding to build up a map of distances to objects. The latest bit of “smoke” is a safety test conducted by the Dawn Project that found, according to a story in The Guardian, that the latest version of Tesla’s full self-driving software, the Tesla Full Self-Driving (FSD) Beta software, repeatedly hit a stationary, child-sized mannequin in its path. The claims that the technology apparently has trouble recognizing children form part of an ad campaign urging the public to pressure Congress to ban Tesla’s auto-driving technology. In several tests, The Guardian reported a professional test driver found that the software–released in June-–failed to detect the child-sized figure at an average speed of 25mph and the car then hit the mannequin. The Dawn Project’s founder, Dan O’Dowd, called the results “deeply disturbing”. Musk has called Tesla’s Full Self-Driving software “amazing.” More than 100,000 Tesla drivers are already using the car’s Full Self-Driving mode on public roads.
In the short term, I think there’s good reason to wonder where the enthusiasm will come from.
I own shares of TSLA in my Volatility Portfolio on my subscription JubakAM.com site. The position is down 17.31% since I added it on November 10, 2021.
