Insights

Tesla Keeps Getting More Respect as Elon Musk’s Vision Goes Mainstream

04 December 2020  |  TRADING IDEAS

Tesla closed at a new all-time high yesterday as Elon Musk’s electric-car maker keeps getting more respect.

An upgrade by Goldman Sachs was the latest catalyst for the stock, already up 609 percent this year. Analyst Mark Delaney based his call on macro and micro factors.

The macro? Quicker-than-expected adoption of electric vehicles across the market. At the micro, company-specific level, he sees wider profit margins as Tesla (TSLA) in-sources more battery production. The company might also license enhanced autopilot software, borrowing a trick from Apple (AAPL). One of the big lessons of the last decade is that investors love sticky subscription revenue models.

Delaney’s call is also interesting based on his track record:

  • He initiated TSLA as a buy on April 14, when it was trading around $130 on a split-adjusted basis.
  • Delaney cut the shares to neutral on June 12 because it reached his target price. ($190 at the time, split-adjusted.) He said he’d get bullish again if he felt more confident “in the near to intermediate term trajectory in fundamentals.”
  • This week’s upgrade suggests he now has that confidence. In case you had any doubts, he raised his price target from $455 to $780 (post split). Based on Thursday’s close, that implies another 31 percent of upside.

Importance of Tesla’s Stock

There are many reasons why TSLA is an important stock. The first is symbolic and historic: It embodies a huge vision of the future. One hundred years ago, General Motors (GM) helped drive the Roaring 20s’ bull market. GM also paved the road for decades of gasoline-fueled transportation. Now the market sees the dawn of electron-powered century, led by TSLA.

Second, TSLA has become a massively popular stock. Yesterday it traded about $26 billion in value (share price multiplied by volume). That was more than the next two stocks, Apple (AAPL) and Amazon.com (AMZN), combined.

Tesla (TSLA), daily chart, with 50-day moving average.

TSLA is the seventh-most valuable company in the world. Its $554 billon market cap ranks between Alibaba (BABA) and Berkshire Hathaway (BRK.B). It’s also one of only three companies to average at least 1 million options contracts per session in the last month, according to TradeStation data. The other two are AAPL and fellow electric-car maker Nio (NIO).

Finally, TSLA’s story is truly a saga of life or death. It struggled with manufacturing problems in the summer of 2019 and was a few weeks from bankruptcy. But then Musk’s efforts bore fruit and the stock had one of the most impressive rallies in history — up 1,576 percent from its 2019 low.

Analysts Still Doubtful on Tesla’s Stock Price

While Goldman’s Delaney might be a believer, Wall Street remains surprisingly bearish on the stock. An analysis by Barron’s this week found that barely one-third of 39 analysts covering TSLA rate it a buy. In contrast, most blue chips have majority buy ratings.

A separate scan by Yahoo Finance shows the average target price is less than $360. That means TSLA must crash 40 percent for them to be proven right.

But the naysayers are gradually throwing in the towel. Prominent short seller Jim Chanos yesterday admitted to reducing his short position against TSLA after a year of losing money.

S&P Dow Jones Indices made an even bigger decision last month by adding TSLA to the S&P 500 index. The decision was prompted by investors unhappy with S&P’s surprise decision to keep the company out of the benchmark earlier in the year.

The official inclusion will occur on December 21 in a single large adjustment of the world’s top stock index. Keep reading Market Insights for more details closer to the date.


This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 04/12/2020.

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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