There nothing like a stock hitting a new all-time high to vindicate a decade of intensive, on the ground, hands on research. That's exactly what happened on April 4th when Tesla (NASDAQ:TSLA) hit a new all-time high, topping $304.
That is a 19-fold return on the $16 price at which I first recommended the stock after the flippers bailed from the 2010 initial public offering.
Do a search of my website and you will find that Tesla is the most frequently mentioned company during the 10-year life of my service. Buy my best-selling book, "Stocks to Buy for the Coming Roaring Twenties" and you'll find three entire chapters devoted to this groundbreaking, icon smashing firm.
The company's revolutionary manufacturing, sales, and management strategies have made it the second largest car company in America in a mere decade, with a market capitalization of $49.6 billion surpassing Ford Motors (NYSE:F) only yesterday.
Throughout this entire time, the company has made no real money to speak of, and has been one of the most heavily shorted stocks in the market.
But enough kudos, hurrahs, and back-patting for myself.
There is something going on here that is much larger than Tesla. For the real story may be not so much the success of polymath Elon Musk than the demise of the traditional US auto industry business model and a fundamental rethinking of the use of the automobile itself.
Look at the Detroit Big Three, and it is like visiting an assisted living facility inhabited exclusively by the elderly. The product quality is poor, innovation is lagging, and the companies have evolved into vast bureaucracies.
Tesla tweaks its assembly lines daily. I've been visiting the Fremont factory now for four years, and I've seen it with my own eyes.
A change that takes Tesla an hour to implement requires six months of committee meetings at General Motors (NYSE:GM). Frequent, tedious, and expensive recalls by the Big Three are fixed by a free overnight software upgrade at Tesla.
It is the classic buggy whip versus rocket ship comparison. And here's the really scary part: The stock market knows this.
Do any value scan of big cap stocks, and GM regularly comes out at the top. With a price earnings multiple of only 5.5X and a 4% dividend, how could it not?
But one portfolio manager's value play is another's value trap.
Since the beginning of 2016, GM's shares have gained a scant 6% in a rising market. Tesla's are up by an eye-popping 44.76%, despite executing a major $750 million capital raise along the way.
By the way, Elon Musk soaked up $25 million of the deal for his own account, a huge "tell for other investors".
What Mr. Market is telling us is that capital is moving out of old technologies into new ones. It is migrating from arthritic business models to cutting edge ones. It is evolving from the past to the future.
Look anywhere in the car space and the data flow aligns with this view. "Peak autos" is on, with US sales topping out at a decade plus high of 17.7 million units annualized in July 2016. Yesterday, that number dropped to only 16.62 million units.
Used car prices have collapsed, demolishing the shares of Hertz (NYSE:HTZ), a major auto owner.
Seemingly out of sync with the rest of the debt markets, car loans have hit a default rate of 3%, up from an historic average 0.50%. Apparently, giving away auto loans for free, with zero interest rates, isn't cheap enough.
This is a big deal, since the automobile industry is a major leg of the entire US economy.
It would be a short step to conclude that the demise of the old line US car industry would have cataclysmic consequences for the stock market, and could bring the eight-year bull market in stocks to a screeching halt.
Will the US government have to make a round trip on its GM ownership?
But you could be wrong.
Which company has been immune from the secular downturn in the auto industry? Tesla, of course.
The company produced 25,000 cars during Q1, 2017, the most ever.
It is on track to build 500,000 cars a year by 2021. Some 400,000 individuals have placed a $1,000 deposit to buy the new $35,000 Tesla 3, out later this year.
And here's the interesting part.
Add up all the losses in market capitalization for the entire US car industry over the past year, and it only amounts to a FRACTION of the gain in market cap by Tesla over the same period.
In other words, money is flowing INTO the auto industry, not out, unless you count Tesla as a technology stock, which it is. Investors aren't fleeing the auto industry, they're just reallocating within it.
It did the same 100 years ago when capital moved from saddleries, wagon builders, and buggy whip makers to a nascent auto manufacturing industry in Detroit.
As for Tesla, call me MAD, but I believe there is another 10-bagger move in the shares from here over the next decade.
And go buy the car! They're fantastic!
Guess What's for Lunch?
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.