Tesla stock appears to be hanging on to the $300 level despite Barclays’ virtual attempt to slap some sense into investors. Using the blue pill/ red pill choice offered to the main character in the film The Matrix, the firm’s analysts wrote what basically amounts to an attempt at an intervention — for investors so caught up in the Tesla Inc (NASDAQ:TSLA) story that they’ve forgotten about the fundamentals.
Needless to say, short-sellers are still dismayed by what’s gone on with this company, and it’s pretty safe to say that as Tesla stock rises, so short interest in the name will rise as well, at least for now.
Tesla stock: red pill or blue pill?
In his report dated April 6, analyst Brian Johnson outlined what he called the four “articles of faith” held by Tesla stock bulls, defining them as the “blue pill” or, in his eyes, delusions of grandeur. He then set them against what he called his “reality-based” view, which he calls the “red pill.”
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First up on his list is the company’s battery packs, which he says Tesla stock bulls feel the company has “a significant and sustainable cost advantage.” While he does feel that the EV maker is heading toward a cost of $100/ kWh with its battery pack, he believes it will take longer than what Tesla has said.
He also believes that competition is starting to catch up with the company, and if that gap in battery cost gets narrow enough, he feels there will be room for legacy automakers to benefit from their massive scale and bridge the overall vehicle cost gap compared to where Tesla is right now.
About that autonomous driving…
Johnson also noted that Tesla stock bulls generally believe that the company has a “significant lead” in the area of autonomous driving, which he feels means that they expect the company to be “the first by several years to achieve a fully self-driving vehicle.”
However, he noted that just because Tesla is rolling out its Autopilot autonomous driving system doesn’t mean the company is necessarily ahead of other companies in this area. Instead, he explained that the company is “just willing to beta test on customers.” Tesla has taken a lot of heat in this area, especially given the growing number of accidents that were either confirmed to have or otherwise appear to have involved Autopilot.
Johnson noted that the company has indeed collected lots of data from its Autopilot system, but it’s still unclear whether all that data has any value, and he feels the company “still lacks the industrial rigor and scale required for autonomous.”
Tesla to be the iPhone of cars?
The Barclays analyst also believes Tesla stock bulls expect the company to dominate the auto industry in a way similar to how the iPhone took over the mobile phone industry a decade ago, although he points out that more and more competitors keep entering the EV ring. He believes the bigger problem is supply, as production ramp, inefficiencies in manufacturing and cash burn could keep the company from building enough cars to meet demand.
And finally, Johnson said Tesla stock bulls also expect the company to also dominate non-auto-related areas such as energy, mobility and insurance. This point seems to sum up nicely the views of Morgan Stanley’s Adam Jonas, who even freely admitted that all of the upside that did exist between his $305 price target and Tesla stock was from Tesla Mobility, which doesn’t exist yet and may never exist.
At any rate, Johnson feels that competition within the energy storage industry is “vastly underappreciated,” and in mobility, he believes that Tesla will have difficulties “replicating the complete multi-modal networks that others can offer.” He also notes that others are already offering the types of insurance plans Tesla has mentioned.
Tesla stock is a story
The Barclays analyst feels that investors are just happy downing the “blue pill” when it comes to Tesla stock, which he says is “disconnected from fundamentals” and “driven by momentum.” He doesn’t see much that will reverse the momentum right now despite these two points. He doesn’t believe the company’s first quarter earnings report will matter, and even though he believes the “Model 3 hype is baked in,” he feels the car’s release might send Tesla stock still higher. He has an Underweight rating and $165 price target on the shares.
Tesla stock has been called a “cult stock” by some and today, New York Times columnist James B. Stewart referred to it as a “story stock.” It’s certainly true that investors like a good story, and when it comes to someone like CEO Elon Musk, who has become a legendary figure and been compared to Iron Man, the status quo is to root for him. Nothing says rooting for Elon Musk like buying shares in his company.
Shares of Tesla stock rose by about 1% during regular trading hours on Friday, climbing as high as $302.69.