Yesterday, in a very relaxed earnings conference call, Tesla Motors (TSLA) reported strong results in its first profitable quarter. We should all stand back and understand what this means. But first, here is an anecdotal event that happened to me one hour before the call. I saw a Model S parked on the street. So I pulled over to look at it. So did 2 other passersby. We all smiled. I was hooked and believe they were too. The car is truly a piece of art. I want one and will put in my order after researching the various options. It's really a no-brainer; paying it forward makes sense to me especially when it brings high performance at no additional cost. I have had dreams of where to put the supercharging stations and think there is one option that make them ubiquitous. That one I will save for Elon Musk, if he wants to hear it.
We think that serious investors should actually listen to the earnings call. There is so much in the inflections of the voice that can only be appreciated by listening to the call. Actually, this is much like seeing the car versus seeing pictures. There really is no comparison. We also suggest you see the Tesla cars as well. On the call, there is a sound of ice in a plastic cup swooshing around. This call was very genuine, not a scripted call. Management was not nervous, very confident and what really was surprising was that it was almost all Q&A. Very little presentation at all. That represents confidence to us. We think that Tesla is on a hockey stick trajectory both in terms of sales and its stock price appreciation. Here are our reasons:
1. Tesla is creating, against severe odds, a paradigm shift in transportation. Electrical Vehicles are the future. Big Oil is fighting it, but they know there is finite oil reserves and at some point, it will be depleted. Ok John Petersen, go ahead and attack.
2. Tesla has an 'freak of nature' CEO. He is on every detail like 'white on rice'. Listen to the call linked above and you will hear it. I won't call him the next Steve Jobs, because he's not. He's Elon Musk. Listen to the 'door handle' problem they had and how they 'downloaded' the firmware fix. Service on the fly. That's another paradigm shift.
3. Another SA contributor has concluded that demand is leveling off in his article today. We say it hasn't even started yet. 21,000 cars in a potential pool of 1,000,000 households at the current price level in the US. Thats a drop in the bucket. The wow factor of the car rolling down the streets hasn't even begun yet. I witnessed it yesterday. And gas, petrol in Europe, is 3-4 times more expensive than here in the US. Demand for the car there will explode. Ironically, even buyers in the middle east want the cars. The Asian regions where gas is 3 times more expensive than the US need Teslas according to our direct discussions with several politicians there.
4. We believe their numbers and they are conservative. Again listen to the call. They speak about the numbers calmly and confidently. They have conservative revenue recognition protocols which don't overstate the truth.
5. Tesla's shares are tightly held as we have written about in the past. Elon has roughly 33 million shares. We don't think he is selling. Maybe a little later, but he deserves to do as he pleases. If he sells, that should not be a negative. In fact, the shorts should pray he does because there is absolutely none available to borrow them to add or maintain their positions. The negative rebate (cost to borrow) is between 40-60% at various wire houses, but with no availability and recalls underway. The stock goes higher in our opinion just on this phenomena.
In conclusion, Goldman Sachs (GS) just put a price target of $61 on TSLA shares That's 3 times the annualized sales. We think for the reasons above, that price is too low. Maybe they did it because they don't have any shares available for their clients who are short. And then maybe not, but one thing is for sure, a runaway short squeeze could take these shares above $100 lickity split if traders are patient and don't hit the sell button prematurely. We think the shares trade like Warhol paintings but soon will trade much higher like Picassos at Sothebys.
Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.