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When I wrote about Apple's results, I said that the company was polarising amongst analysts, which is true. But they don't come more polarising than Tesla. After results on Wednesday night, the stock shot up 10% to trade at an all-time high of $640. The stock has tripled since August last year. The share price graph tells an interesting story.
Tesla hit $184 a share for the first time in September 2013. In May 2019 it was at only at $190 a share. Then from October last year it kicked up a gear. Oh wait, Teslas don't have gears. The share engaged ludicrous mode!
Let's look at the numbers to see why.
Firstly look at their production numbers.
Focus on the Model 3s. The ramp up of an affordable, mass produced vehicle was always going to be the biggest challenge. It seemed like they have gotten over that watershed, well according to the market at least. What is incredible is that demand has never been an issue, and they haven't spent a cent on advertising. Although sending a car to space may count as advertising?
The company also made some sort of profit this quarter. Over $1.175bn EBITDA, which means it is starting to be able to fund itself. It is still in high growth mode though so profits will be volatile. More importantly, the cash balance sits at $6.2bn.
For me, the biggest risk for Tesla was that the market would lose belief before they achieved scale. That would have smashed the share price and its access to capital. That in turn would have crushed the company. It is a bit of a self-fulfilling prophecy which is dangerous.
But once a certain level of scale was achieved, the company becomes less reliant on perception. With the Chinese Gigafactory being built in 10 months, and the production success of the model 3 in the US, I think that they have passed that risky stage of collapse. That is why the share price has rocketed. Now that the market (most participants) is convinced, even more doors will open for Tesla. We still think there is big upside. But I wouldn't be surprised to see a few share price hiccups along the way. Buy this one with caution.