Tesla: Stock of the Week

Andrew Willis:

Since 2016, Tesla TSLA hasn’t traded below our fair value estimates for any significant period of time. Until now. Was it Elon Musk himself?

Between November 4th and 8th, Elon Musk sold Tesla stock, likely for his Twitter purchase, and the stock tumbled 11% in those three days. But the Tesla stock sold only amounted to about $4 billion—in a more-than-$600 billion market cap company.

As strategist Seth Goldstein points out, when Tesla stock was down in those days, broad U.S. markets were up, all while no company-specific news was released. Are Tesla investors getting sentimental about the amount of attention Elon’s giving to Twitter? Or is this worry about broader consumer sentiment that applies specifically to Tesla’s product? We’re leaning toward the latter. And it could be a buying opportunity.

Much of the worries about demand in the luxury auto market may be displaced. In an economic slowdown, the prices of luxury goods are rather resilient—and investors shouldn’t forget Tesla is still a fast-growing company, with deliveries we forecast will grow 50% between this year and next.

Against the backdrop of Elon’s tumultuous Twitter takeover, we still see Telsa getting the right attention, and investors should keep an eye on the company’s progress in battery costs. At the core of the cost problem for consumers, the company hopes to cut battery costs by more than 50% in the coming years. This progress would be useful for planned affordable models—just in case this consumer sentiment persists.

For Morningstar, I'm Andrew Willis. Check out Morningstar.ca to watch "Shopify: Stock of the Week"