Tesla’s Latest Plan to Change the World: Buy or Sell?

Elon Musk’s most recent announcement regarding the future of Tesla came precisely in company fashion: it was delivered late, but exceeded expectations.

Musk outlined plans to add three models to Tesla’s fleet: a semi-truck, a pickup truck, and a more compact, affordable SUV. With the addition of these three products, the Tesla lineup will address almost all of the automobile market. Moreover, Musk reiterated Tesla’s intention to acquire Solar City, of which he is a significant shareholder. He aims to integrate solar power along with Tesla’s home batteries to complete the sustainable, zero-emission lifestyle.

But the entrepreneurial titan didn’t stop there.

Tesla will also unveil what Musk described as a self-driving bus for urban settings, that people will depend upon for public transport. The concept of public transportation is reputable for limiting emissions as people reduce their individual contribution of greenhouse gasses, but public transport itself contributes significantly to the global crisis of climate change. The larger the vehicle, the greater the environmental impact. While semi-trucks and busses only account for about 1% of automobiles on the road, they produce 10% of emission output. Musk plans to overhaul a sector of the transportation market that EV manufacturers have previously left untouched.

Aside from these product-based innovations, Musk has an entirely different revenue-generator in mind for both his company and Tesla drivers around the world. In efforts to accelerate sustainable transport, Tesla will offer a car sharing program, wherein Tesla owners can add their car to a greater network, and earn money as others rent out their Tesla during the day. This has two benefits: firstly, owners of the expensive EVs can earn some cash during the 90-95% of the day when their car is otherwise parked. Secondly, people who cannot afford the “more affordable” Model 3 (base MSRP of $35k), can still get a ride in a premium electric vehicle. Did I mention these rides would be driverless? With this announcement, Tesla cemented its place as the premier electric car manufacturer, while casually killing a large portion of Uber’s business.

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What if this Model 3 were your rental car (that drove itself)?

Tesla is notorious for its aggressive investment into R&D, and the plan that Musk has outlined suggests that the future will be no different. Shareholders will have to sacrifice present profitability for future dividends. Musk himself estimated that Tesla would not be profitable until 2020, but that prospect becomes even more unlikely considering the investments necessary in Musk’s latest roundup of product and program initiatives.

From an investment perspective, I maintain my opinion that the stock will not be a good buy for at least another 12-18 months. Musk’s most recent announcement is ambitious and entails products that will inevitably change the industry, but no time soon. Musk plans to revolutionize the automotive world once again, but it will take several years and near-perfect execution. Investors shy away from such daunting news, and this is no different. The stock has reacted negatively to the potential Solar City acquisition, and the price will remain especially pessimistic if the deal closes.

Other factors such as autonomous driving will weigh the stock price. Even though Tesla is 5+ years ahead of its competitors, driverless technology is risky, and the slightest rumor of a flaw will (and has) affected the stock. In Tesla fashion, this technology will improve, but it will take time before shareholders truly trust Tesla’s innovation.

Tesla has already changed the world, and it will do so again in a far more impactful way. And when it does, you’d better have cash on hand to go long.

 

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