Yes, Tesla (TSLA) is a coronavirus stock – just a little. Last week the company announced that its factory in Buffalo, New York would reopen for ventilator production “as soon as humanly possible.” Gigafactory New York typically produces the company’s solar roof tiles as well as other products and accessories, but those items haven’t been deemed essential for today’s economy.
Separately, the CEO of Medtronic, a major medical equipment company, announced that they are working with Tesla to deploy ventilator production capacity at Tesla’s Fremont factory—so it’s not quite clear whether production of the ventilators would be in both locations. In any case, while it’s great that Tesla can help address the coronavirus problem, I don’t think the ventilator business will be a major factor for Tesla going forward.
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What will be a factor for Tesla in the short term are the forced shutdowns of the company’s Fremont, California Gigafactory and its Sparks, Nevada Gigafactory. How long these shutdowns will last, no one knows. But the stock market chopped 63% off the stock’s value recently, so the market is almost certainly discounting a serious slowdown.
In the meantime, the company’s Shanghai Gigafactory is back up and running, and the company is rapidly moving ahead with the construction of its Berlin Gigafactory, still years ahead of the rest of the automotive world. So long-term prospects remain great.
Why Tesla is a Great Investment Today from a Fundamental Point of View
Fundamentally, Tesla is on track to be the number one automotive company in the U.S. plus the number one electric utility! (Of course, most people don’t realize this yet, but most people don’t think as big and as creatively as Elon Musk.)
Imagine a combination of a leading auto company (General Motors or Ford) plus a leading electric utility (Pacific Gas & Electric or Southern California Edison or Florida Power & Light).
In the old world of petroleum fueled cars and fossil fuel electric plants, there were few synergies among these industries, so these businesses were unlikely to be under the same roof. But in the world Tesla is creating, there are great synergies—because all this company’s products work well together.
In such a system, energy, increasingly generated by roof-mounted solar panels, but also at utility-size solar fields, is stored in battery systems (again, either home-size or utility size) and then used to power your car. Distributed energy combined with battery storage means massive failures of the electric grid become a thing of the past. Gas stations slowly disappear, as does pollution from automobiles (something we’ve gotten a taste of recently thanks to the coronavirus slowdown). And the slow phasing out of internal combustion engines means our roads get quieter, too.
It’s a vision that Elon Musk has had in mind for decades, and only now are the established automakers of the world realizing that this vision has become reality—without their contribution—so they’re working hard to catch up.
Why Tesla is a Coronavirus Stock
But they’re years behind—and the slowdown that coronavirus will bring to the industry means their cash flow will slow, at exactly the time they should be investing in new technology. In fact, the long-planned merger of Fiat and Peugeot is now at risk of falling apart, and I’m wondering if GM will be able to complete its promised $2.2 billion refurbishment of its Hamtramck assembly plant to build electric cars.
As for Tesla’s product lineup, it keeps getting better and better. The Model S is a great large luxury car, and the Model X is a great large SUV, but the entry-level Model 3 sedan is the company’s volume leader, and the small Model Y SUV is going to be a home run. And then there’s the Cybertruck, which (finally!) breaks the mold of what a pickup truck should look like, and the Semi, which will revolutionize the commercial trucking market
Turning to the sales part of the business, Tesla’s direct sales model with fixed pricing means customers never feel cheated by a car salesman, and the fact that Tesla has yet to buy any advertising testifies to the fact that demand for Tesla cars continues to exceed supply—and there are precious few automakers who can say that!
Why Tesla is a Great Investment Today from a Technical Point of View
The chart below shows TSLA’s history since 2011.
The key features are the blast higher in 2013 when it became clear that the Model S would be a great success, then the long basing formation that lasted until mid-2019, and then the second blast higher in 2019, when it became clear that the Model 3 was a big success, and that the Gigafactories would be able to ramp up production speed while cutting costs.
Since then we’ve had the quick coronavirus bear market, but that’s unlikely to hold this stock down long. There was too much built pent-up buying power in that blastoff for it to end so quickly. Instead, this stock wants to get back up to that old high—and eventually higher—because Tesla is revolutionizing the world.
Yes, Tesla is kind of a coronavirus stock. But really, it’s just a great growth stock – no matter the environment.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More