Earlier this summer, I recommended buying Tesla (NASDAQ:TSLA). At the time, shares were trading for a bargain price of $227.
“Tesla is 10 times more likely to hit $300 than it is to fall beneath $193, the level at which shares peaked in October 2013.” – Robert Williams, June 18, 2014
Well, the stock recently traded as high as $289, and…CEO Elon Musk just enjoyed the best month ever. But let’s not give Musk a champagne toast quite yet.
According to some insiders, his escapades over the last 30 days are a warning to sell shares. Before we address whether my “Buy” rating on Tesla still holds true, allow me to share the six reasons why I believe Elon Musk just enjoyed the best month in modern technology history.
Reason #1: Nevada’s Ridiculous ROI. On September 3, Musk picked Nevada as the state in which to build Tesla’s mammoth $5-billion lithium-ion battery gigafactory. Located in Reno, it will be the biggest battery factory in the world and create 6,000 new jobs. But it took a tax break package worth $1.3 billion to seal the deal and fight off competition from California, Texas, Arizona, and New Mexico. Musk says Tesla will generate its own energy from solar, wind, and geothermal sources to power the factory. It’s expected to produce $100 billion for Nevada over 20 years.
Reason #2: Blasting Into Orbit. On September 7, Musk’s SpaceX company blasted the Falcon 9 rocket into space, where it made contact with the AsiaSat 6 satellite. It was the 12th successful Falcon 9 flight and the second successful mission for AsiaSat 6 this summer.
Reason #3: One Small Step for Man… On September 16, SpaceX won $2.6 billion of a $6.8-billion NASA contract to take astronauts to the International Space Station (ISS). It was a major coup, given that Boeing (NYSE:BA) was expected to claim the entire contract. It also marks the United States’ return to manned spaceflight, and sets the stage for commercial flights to space. The first manned expedition to the ISS is planned for 2017.
Reason #4: Forget Airports… On September 22, SpaceX broke ground on its new coastal spaceport in Brownsville, Texas. From there, the company will initially launch commercial satellites into space, with private and commercial astronauts following at a later date. The Texas government will contribute $15 million towards construction, with SpaceX spending a further $100 million. The first launch is tentatively planned for late 2016.
Reason #5: Access to Alien Technology. On September 23, SpaceX’s Dragon capsule docked at the ISS, delivering 5,000 pounds’ worth of supplies and equipment. That included a 3-D printer and 20 mice for biological research into the loss of bone density and muscle mass in space. It was SpaceX’s fourth mission to the ISS – part of a $1.6-billion contract of 12 flights. SpaceX has also created Dragon 2. Musk calls it “a significant upgrade in technology.” That’s because it’s “capable of a precise, propulsive landing. So it will be able to land anywhere in the world on its thrusters with the accuracy of a helicopter… If you imagine an alien spaceship landing, that’s how it would land.”
Reason #6: The Biggest Solar Factory in the West. On September 23, it was announced that SolarCity (NASDAQ:SCTY) – where Musk serves as Chairman – would build the Western Hemisphere’s largest solar factory in Buffalo. The one-million-square-foot building will manufacture solar panels and create 5,000 jobs. SolarCity will spend $5 billion on the project over the next decade, and when the factory is running at full speed in 2016, it will crank out one gigawatt of solar power per year.
I’d say that’s a pretty incredible month, right? But does it also speak to a CEO who’s growing beyond his means?
Well, in regard to Tesla’s stock, the bears will point out that Tesla’s total year-to-date output remains less than one day’s worth of output at General Motors (NYSE:GM) or Ford (NYSE:F).
According to a JP Morgan analyst, Tesla might be able to deliver only 18,250 vehicles in Q4, which implies that the company can effectively produce 73,000 vehicles over the course of a year. Tesla’s target for 2015 is to manufacture 100,000 cars. Yikes.
As I see it, the even bigger negative is Tesla’s disappointing buying among hedge funds in the latest quarter. Companies enjoying incredibly bullish sentiment typically attract upwards of a billion dollars in newly opened positions. But from April through July, hedge funds and institutions only bought $548-million worth of Tesla’s stock.
Remember, the stock market functions just like an auction… when buyers are more active than sellers, the bid price increases. On those merits, without strong levels of institutional buying, Tesla’s shares are under no pressure to appreciate.
So for now, let’s move the stock to a “Hold.” Onward and Upward.