When thinking about Tesla (TLSA) most investors see it as an automotive company. Investors try to value the company as they would GM or Ford (F) and the like.
When I look at Tesla, I see a technology company that just happens to make cars. While they are doing this, they are improving and creating ways to better store energy in batteries and bringing new and unique technologies to cars.
Tesla, obviously faces major issues as it tries to make a jump from a high-end car manufacturer to a mass-market producer.
The biggest hurdle, in my view, to the success of this is the cost of the battery. This is really the most critical part of the whole project. The battery is the most expensive part of the car.
If they are able to drive the price of the battery lower, Tesla may be able to improve profit margins. The other critical piece is Tesla’s ability to actually produce the number of cars needed to meet consumer demand.
This will really become noticeable once the Model 3 becomes available. This production challenge was something investors were focused on heading into the past quarter.
There were concerns by many analyst and investors that caused the stock price to fall significantly. However, after the company reported and showed they expected to stay on track with production targets, investors’ fears seemed to calm. If anything, this just reconfirmed Tesla’s ability to continue to deliver.
When you think about the company as of today, I see a lot of promise for it in to the future. They are changing consumer habits and expectations. They are recreating the way one purchases a car, taking the dealer out of the equation.
I also believe Tesla has marketed itself in a really unique way, without even running ads. It started with a high-end car and is now working itself in reverse. It made Tesla a luxury brand.
Now as Tesla enters the mass market, consumers will continue to view Tesla as a luxury car. I think this was a very unique and smart way to go about creating a new company. The Tesla Model 3’s chief competitor will be the BMW 3 series of the world, not the Chevy Bolt.
The stock has certainly had a big move off of the lows since the last quarterly report. This makes the decision as to whether or not this is an appropriate time to enter tricky. The stock was clearly oversold during the February sell off.
In my opinion, the stock at current levels is fairly valued. I look for investments by looking for themes and trends in society.
Tesla fits into my theme of “technology changing consumption habits.” I look at all of my investments from a long term point of view. As a long term investor, Tesla’s current price is certainly a compelling entry point in my opinion.
Photo Credit: Steve Jurvetson via Flickr Creative Commons
- Mott Capital Management uses a long-term thematic growth approach to investing in equities. We search for investments that both reflect and help to shape generational and demographic shifts. Mott uses a philosophy of buying these companies for a 3- to 5-year time horizon, with the belief that a long-term holding period gives themes and our chosen companies a chance to fully develop. In our view, the long time horizon also serves to mitigate the risk associated with the short-term impact of market volatility.