Tesla And The Margin Of Musk

| About: Tesla Motors (TSLA)

Summary

In all of the analysis around the Model 3 unveil and missed delivery targets for Q1, investors are missing a huge factor.

That huge factor is Elon Musk.

As long as consumers and the market continue to believe in Elon Musk's vision, bears should tread carefully while bulls should recognize the inherent volatility to the margin of Musk.

Introduction

Elon Musk is Tesla (NASDAQ:TSLA). Two months ago with its share price down 40% in two months, it appeared that the Tesla bubble had finally burst. Musk was facing the potential of a margin call on his shares, which could have led to a complete collapse of Tesla's share price.

But in all of the analysis about overpromising and underdelivering, a lack of profitability and massive GAAP losses, one critical factor was missing: the margin of Musk. No this isn't the financial margin that I and other bears have focused on. Rather, this is the margin that investors are willing to give Musk to see his vision play out.

Click to enlarge

Source: bgr.com

With massive demand for the Model 3 and pre-orders that could reach 500,000 soon, both bears and bulls need to take a closer look at the margin of Musk.

The Margin of Musk

There are plenty of criticisms that can be leveled against Elon Musk, but no one can say he lacks a visionary outlook. He thinks big, promises more and offers an ambitious vision that no other CEO since Apple's (NASDAQ:AAPL) Steve Jobs could offer. Just as Jobs offered a vision of Apple transforming the world into a better place through technology, so too does Musk offer a similar vision with Tesla. Musk's vision for Tesla is to fundamentally transform the world by creating sustainable transport.

This ambitious vision is Tesla's ultimate selling point. When looking at the Model 3 unveil, Musk carefully explained his vision to consumers and investors. At the very beginning of the launch, he sells his vision by explaining:

Why does Tesla exist? Why are we making electric cars? Why does it matter? It's because its very important to accelerate the transition to sustainable transport. This is really important for the future of the world.

Take a step back and think about this comment. Does he talk about making money? No. Does he talk about building a great car? No. Does he talk about distinguishing his product from others? No. Instead he goes for a grand vision that is well beyond numbers, cars or his particular company. He offers a vision of changing the world by transitioning to sustainable transport.

This is the most ambitious goal any CEO of any company has offered in recent memory. He then follows this point up by not immediately going into the history of Tesla or talking about the Model 3. Instead, he provides a wonkish overview of the threat humanity faces from rising CO2 emissions. His explanation channels the best of Al Gore's An Inconvenient Truth through the use of graphs to demonstrate the urgency of fighting global warming. He patiently explains how global CO2 levels are now at 403.5 parts per million and continue to rapidly increase. He explained how the Earth has not seen this level of CO2 concentration in 11 million years.

But why should we care? Because Tesla is doing something about this by accelerating the transition to sustainable transport. This is Tesla's selling point and exemplifies Musk's overarching vision. Musk is arguing that consumers can fight global warming on a day-to-day level by buying a Tesla. Not only do consumers get to own a stylish car, but they are also doing something good for the environment.

Click to enlargeModel 3, Source: Teslamotors.com

Whether one agrees with Musk or not is irrelevant because consumers are buying into his grand vision as can be seen with the massive demand for the Model 3. With reservations likely topping 500,000 cars soon, this is a clear demonstration that consumers believe in Musk's vision, especially since consumers will not even be able to get a Model 3 until the end of 2017 at the earliest.

Conclusion

Although the rest of the unveil was a careful introduction to the logic of Tesla's development and an introduction to the attractive Model 3, the most important factor that continues to drive Tesla's success is Elon Musk's ability to get people to buy into his vision. As long as consumers and investors continue to buy into his vision more than the heavy financial losses the company continues to incur, then Tesla's share price may continue its rapid ascent.

Even though I do think Tesla's share price remains at a bubble-like valuation, this bubble can continue to inflate as long as consumers and investors continue to believe in the margin of Musk. But investors should keep in mind that a belief is fundamentally different than a fact. And while the financial facts do demonstrate consistently poor financial numbers, this is irrelevant to believers. Belief is not rational, nor is belief about facts and figures. Belief is about taking a leap of faith and both consumers and investors continue to take a leap of faith towards Musk's vision.

Ultimately, betting against Tesla is betting against Elon Musk and his grand vision for Tesla. At this current juncture, this is not a winning proposition. Momentum is clearly on the side of the bulls. Just as the Dutch Tulip bubble demonstrated, a belief can sustain a bubble for a long period of time. Although bubbles do eventually pop, if enough people - and especially investment banks - continue to believe in Elon Musk's ability to deliver on his vision, then Tesla will continue to survive on the margin of Musk.

Disclosure: I am/we are long TSLA VIA CALL OPTIONS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Positions may change at any time and investors are reminded to complete their own DD before investing.