Tesla Motors Inc. (TSLA) has been through extreme highs and lows throughout 2013. After Sarah Palin made a comment in the media in April that "Tesla is a loser" the stock went on a rocket ride from $40 per share to $194. But it wasn't just irony, hype or a short squeeze. The most successful electric car maker to date really did get a lot of good press most of the year.
Top Wall Street analysts threw out predictions as high as $300 following impressive earnings reports. In August the National Highway Traffic Safety Administration as well as Consumer Reports called the Tesla Model S the safest car of all time. But in October Tesla fell into a downward spiral following reports of a Model S catching on fire. A few similar incidents occurred through November, pushing the stock below $140.
Model S Innovation
The Model S is Tesla's only release so far and its high price indicates that it is strictly for affluent early adopters who can afford $73,000. Although the Chevy Volt and the Nissan (OTC:NSANY) Leaf are lower priced electric cars and the hybrid Toyota (TM) Prius has been another winner in the new wave of electric cars, it has been Elon Musk's Model S that has captured more exuberant headlines in the financial world. CEO Musk also pioneered PayPal and more recently the upbeat solar installer SolarCity (SCTY).
In many ways Musk has been the most prominent leader in the corporate world to take on the role of visionary since the death of Steve Jobs in 2011. Musk has stated goals of issuing more affordable cars for the middle class by the end of the decade. He has introduced new concepts to the electric car space such as battery swapping at recharging stations. The swap takes less than a few minutes at a cost of $60-$80. One of the most important selling points of the Model S is that it can go 250 miles before recharging.
2013 Q3 Earnings
After the Q2 report helped fuel Tesla on an upward trajectory, the reaction to Q3 was much different. Even though the company generated revenue of $431 million with adjusted non-GAAP revenue of $603 million, the net loss was $38 million. The stock immediately fell over 11 percent on the news. Barclays analyst Brian Johnson stated the stock was valued at $141, which is the territory where it landed in November. Model S deliveries in the third quarter also did not meet his expectations of 5,850 although the 5,500 shipments surpassed Musk's initial guidance of 5,000.
Looking forward, Musk announced the development of an SUV edition called Model X within the next year and a third car priced around $35,000. Musk admitted prior to the release that the stock was over-priced, trading over 700 times earnings. During 2013 the stock has been up as high as 400 percent.
The amazing ride Tesla enjoyed from April through October resembled the manner in which dotcoms skyrocketed in the late 1990s. Part of that type of market action is driven by hedge funds and other short term traders. By the time the stock had risen to $150 one hedge fund manager, Steven Kiel of Arquitos Capital Management, informed investors that he was skeptical of the stock's long term health. He warned that sentiment could quickly turn on Tesla unless the company has "incredible operational performance" over a long period. He warned that anything less could mean huge losses for investors.
There have been segments of Tesla's surge that could have easily been quick massive gains for hedge funds. But much of the ride has been volatile from a short term trading perspective. At the same time, the stock could have been a "buy and forget" play for anyone who bought prior to September, when the stock began to cool off. Volume has been volatile throughout the run ranging from under 10 million to above 30 million shares.
Part of the reason it's been a dream stock for hedge funds that live and die by technical analysis is that it followed the laws of support and resistance until the news about the fires in October, which faded the stock well below what appeared to be a support level of $160. The new support level below $140 appears to be forming for those who believe that technical analysis matters.
Why Innovation Matters
In the big picture Tesla has a mixed balance sheet and it's very hard to tell what its real value is. But what continues to make it a stock to watch is the fact that it's run by a game changing visionary. In many ways the Model S seems like not only the car of the year but the car of the future, making it a buy at any 2013 price.