Tesla – Is it Still a Buy

Telsa (TSLA) is up nearly 300% in 2020 and it would be the top performing stock in the S&P500 Year-To-Date IF it were included in that index. TSLA’s rally over the last year is similar to some of the biggest runs seen for stocks in the late 1990s.

Tesla (TSLA) has rallied 818% since it made its 2019 closing low of $178.97 just over a year ago on June 3rd 2019.   Since its IPO back in 2010, shares are up just under 10,000%.  The chart below is all you need to see just how incredible the recent move has been.

Tesla’s rally over the last 13 months harkens back to the Dot Com days of the late 1990s.  We wanted to see how TSLA’s move compares to some of the top-performing stocks during the heyday of the Internet/Telecom bubble.

Below are price charts of three big winners from the late 90s that were thought of as industry revolutionaries similar to what Tesla is to cars and battery technology.  These include Qualcomm (QCOM) — wireless communication, America Online (AOL) — internet service provider, and Dell Computer (DELL) — personal PC delivery.

In case you forgot or weren’t involved in markets at the time, the moves — especially from late 1997 to late 1999 — were incredible.

With the caveat that each stock began its ascent with a different market cap and that Tesla’s (TSLA) market cap at the time of its IPO was larger than these other three stocks we compared the moves of each from its IPO

At its peak in 1999, Qualcomm (QCOM) was up nearly 20,000% from its 1991 IPO price, and it rallied more than 2,500% in 1999 alone.  AOL was up more than 80,000% from its 1992 IPO price at its Dot Com peak, while Dell Computer (DELL) was up more than 100,000% from its 1989 IPO at its peak.

Amazon (AMZN) is another stock to look at since it IPO’d in 1997.  While the Dot Com bubble hardly even registers on its price chart at this point (it’s up 210,000% since its IPO), AMZN took part in the Dot Com bubble with a 7,000% rally in less than three years.

TSLA’s 9,000%+ gain since its IPO looks tiny relative to stocks like QCOM, DELL, and AOL that surged much more than that during the Dot Com boom.  But if we compare Tesla’s 818% gain since its June 2019 low to the moves seen over the same number of days leading up to 1999 peaks for the Dot Com stocks, things start to look more similar.  As shown below, QCOM saw the biggest gain leading up to its bubble peak at 2,500%, and AMZN was up twice as much as TSLA, but AOL and TSLA look pretty similar and TSLA actually outperformed DELL.

Just the fact that TSLA compares at all to some of the biggest winners of the Dot Com boom should provide caution even to Tesla’s biggest fans.

Tesla is now the most valuable car company on the planet with a valuation of more than $208 billion making it worth even more than Toyota, the previous most valuable car company in the world, which is valued at roughly $203billion.

Tesla is also now worth more than many of its rivals combined, such as Fiat Chrysler ($20 billion), Ford ($24 billion), Ferrari ($32 billion), General Motors ($36 billion), BMW ($41 billion), Honda ($46 billion) and Volkswagen ($74 billion).

Comparing Tesla to Toyota we find it hard to justify the current share price of Tesla. Tesla said it produced 103,000 vehicles in the first quarter of 2020, that compares to 2.4million for Toyota. Toyota has spent decades refining and improving their production line to increase efficiency and reduce operational costs. It will take decades more for Tesla to achieve the same thing and we doubt investors are willing to wait for decades to prove it.

Many analysts on Wall Street still warn that Tesla, now at well over $1,000 per share could be grossly overvalued. Cowen’s Jeffrey Osborne said in a note to clients on Tuesday that the firm “continues to be cautious on Tesla,” with an underperform rating on the stock. Morgan Stanley analysts similarly have an underperform rating, warning that too many investors are ignoring the risks of running a car company and instead treating Tesla like a high-growth tech company.

We are in the same camp as these analysts and think Tesla is looking like a dangerous bubble and one best avoided.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.