With shares of the electric vehicle maker on a tear, markets may finally see the company like a tech - not auto - juggernaut.
What explains Tesla’s tear, and where are shares headed from here? That depends on whether markets keep treating Tesla as merely an innovative automaker or what it really is - a global tech giant.
Tesla’s sentiment score over the past four years versus the median sentiment for the auto sector. Pulled from AlphaSense's new Earnings Call Sentiment Module.
Shares of Tesla have doubled over the last six months and are up more than 190% since its trough last June. The company has now crossed the $100 billion market cap, making it worth more than Ford Motors and General Motors combined.
That’s a sharp change of fortunes for a company that has been piled into by high-profile short-sellers like Greenlight Capital’s David Einhorn.
And it’s rare for a large cap stock like Tesla to double in a six-month period. Analysts at AllianceBernstein ran a 40-year historical screen and found that on average, only three large cap stocks per year are able to double within six months (note that they excluded the tech bubble and aftermath of the Financial Crisis as anomalous periods). Furthermore, the large caps that did double saw a subsequent six-month return of just 2.6%. All of this makes Tesla's growth particularly impressive.
But these analysts note that it’s extremely unusual in the auto and industrial sector; in fact, they count only three instances of it occurring in the auto sector: Ford and Daimler in the aftermath of the financial crisis, and Fiat Chrysler in 2017.
Where large cap stocks double much more frequently is in the tech sector. Of the 151 instances identified by AllianceBernstein, 30% were in tech (financials were second with 19%, and commodities third with 15%).
And markets are now turning the Tesla story from the strong automotive one to one increasingly focused on what other applications of its core technology could be.
Positive mentions of Tesla in the News 2018 - 2019
As the company’s balance sheet improves, analysts at Jefferies note that the company’s other technology ambitions are becoming increasingly viable. That includes new benchmarks in density and charging cycles. The analysts see the company’s highly anticipated developments of a million-mile battery having seismic implications for design and engineering. If accomplished, the technology could be disrupting and enable Tesla to supply batteries to other EV companies and into storage markets.
Add to that Autonomous Vehicles and Sharing. While autopilot has had issues, the analysts note that the companies contrarian preference for vision and machine learning is picking up traction. Visions of a ridesharing and robotaxi business presented last year could evolve into industry-wide game changers and add further upside to the stock.
In updating their price target to $600, Jefferies analysts calculate the value of these technologies. They see storage/generation and selling batteries to third-parties as major opportunities. (They estimate these markets to be worth $90 billion and $235 billion by 2025 and 2030 respectively).
Wall Street, then, may finally be waking up to a vision that Tesla CEO Elon Musk has long articulated. While revenue from automotive sales is what sustains the company financially, Musk has pointed to other technology moonshots as even more profound.
“That transition, that sort of flipping of the switch from a car that is from not robotaxi to robotaxi, I think will probably be the biggest step-change increase in asset value in history by far,” Musk said in the company’s third-quarter earnings call.
And Musk is even more bullish when it comes to Tesla’s energy ambitions. “I think there's generally a lack of understanding or appreciation for the growth of Tesla Energy,” he said. “In the long term, I expect Tesla Energy to be of the same -- roughly the same size as Tesla's automotive sector or business.”
That markets are finally viewing Tesla as a tech pioneer and not just an automotive innovator could be a key factor in the stock’s run so far. And if that view continues, it could mean more upside ahead.
Positive Mentions of Tesla in the News