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Summary

  • Tesla stock has pulled back over the last several weeks.
  • Controversy surrounding direct selling and broad market caution has been the culprit.
  • Tesla remains a buy on pullbacks and could be a stock that continues to buck a downturn in the market.

The statement "Tesla is trading off of its highs."

It's just something you don't hear when people are talking about Tesla anymore - not for the past couple of months, at least.

As part of a broader macro market pullback and a result of Governor Larry the Cable Guy (R-NJ) helping block the company's cars from direct sale in NJ, Tesla (NASDAQ:TSLA) has slumped a bit in the last two weeks.

(click to enlarge)

The broad market selloff, I can't do anything about. If the market decides to one day just rope in Tesla's valuation, that is what it is. Do I think Tesla deserves its current valuation? Yes, and I've argued that many times over. There are very, very, very few companies that I would advocate this type of valuation for - Tesla is one of them.

I wrote about the Jersey debacle last week, in my article, "Can New Jersey Harsh Tesla's Mellow?" I called the issue a "small problem" and then postulated that somehow, Musk was going to figure out a way around it:

Further, there's no doubt in my mind that Musk and his team are significantly smarter than the constituency that makes up the New Jersey government - and I mean that in the nicest way possible. For every problem, there's a solution, and Tesla is no doubt going to find that solution - or at least an "end-around" - to this little problem that it's facing.

The point is that direct selling in New Jersey is so low on the list of concerns that both bears and bulls should have about Tesla, I almost want to go as far as saying this is a non-event. The fact that Christie is at the helm of this, without getting political, is equally as farcical.

It is the year 2014. People are buying vehicles online and taking retail purchased trips to outer space. The chances of this being any more than a hiccup to a company that has created the most revolutionary product in the automotive industry in arguably the last 40 years is going to find a way to get past this.

And, judging by the response from Elon Musk this past week - in a letter he wrote to the people of New Jersey - I wasn't far off in my guess that he was going to figure out a way to at least skirt the rules for the short term, before finding a long-term solution. Musk wrote:

Some reassurances are also in order. Until at least April 1, everything is business as usual for Tesla in New Jersey. It should also be noted that this regulation deals only with sales, so our service centers will not be affected. Our stores will transition to being galleries, where you can see the car and ask questions of our staff, but we will not be able to discuss price or complete a sale in the store. However, that can still be done at our Manhattan store just over the river in Chelsea or our King of Prussia store near Philadelphia.

Most importantly, even after April 1, you will still be able to order vehicles from New Jersey for delivery in New Jersey on our TeslaMotors.com website.

He's right, though. What cooler way to buy a car than to fly into another city and drive it back home? There's some appeal there, and people that are buying Tesla:

1. Definitely have the means to get wherever they're selling them.

2. Will do what it takes to get the vehicle that they want. You only have to go get it once, then you get to drive it for as long as you want.

So that solves that problem for the time being - at least until Elon can invent another solution that will likely make Chris Christie and the auto lobby in New Jersey look like even bigger buffoons than they already do.

History, I'm guessing, will not be kind on this decision.

Lastly, it was reported by Seeking Alpha to end the week last week that direct-selling bans are being talked about in New York. Additionally, the "lithium ion batteries probed in the Malaysian Air disappearance" headline seemed to have crossed into the tubes that control Tesla's algorithmic trading.

Seeking Alpha reported:

  • CNN is reporting that lithium batteries stored in the cargo hold are being investigated as a potential cause for the disappearance of Malaysian Air MH370.
  • The Global X Lithium ETF (NYSEARCA:LIT) is at a session low following the development, down 0.5%.
  • There is also a chance of some volatility with Tesla Motors (-3.2%) as algorithmic trading picks up on the headline. TSLA was already lower on the day before the lithium link was reported on.
  • Tesla Motors (-2.1%) could be facing a battle in New York to sell cars directly to consumers with auto dealers urging state legislators to issue rules banning the practice.
  • There is no legislation in place at the moment in the state.
  • The EV automaker is expected to continue fighting auto dealer groups in the courts to keep its direct sales method thriving.

I continue to look at this news that has temporarily mired the stock as small potatoes when it comes to the big picture. Again, I've wanted to get into Tesla for a while, but haven't because I refuse to chase. The stock has been running like greased owl crap, and I just haven't been able to time it right. However, if the stock continues to move towards its rising 50DMA (about to cross $200), I could find myself in a position where I finally feel comfortable entering.

I remain steadfast and bullish on the company, again stressing that it's one of the few companies that I would ever "okay" this type of valuation on. Those who know me know that I try to be a fundamental investor, and by those means, Tesla shouldn't appeal to me - but it does.

Best of luck to all investors.

Source: Something You Never Hear About Tesla