The Musk Discount (Clients Only)

by | Jul 22, 2022 | General

Tesla Remains a Major Opportunity

Tesla has always been a controversial company and stock. Nearly all of the controversy comes from its major stockholder and CEO, Elon Musk. Here are a just few of his traits that have discouraged many from investing in Tesla stock:

  • He’s promotional and over-promises: Musk has been promising Self-Driving cars for years and so far has failed to deliver. He promises a robot.
  • He’s distracted: Musk is involved in too many businesses, including Space-X, solar energy, and now Twitter. He’s building a robot.
  • He’s not serious: Tesla’s Chief Financial Officer has the title of Master of Coin. Musk wants to colonize Mars. He’s building a robot—that walks.

We understand why these issues turn off many investors, but we believe Tesla is a cheaper stock today because of these personal traits. For that reason, Tesla might offer the best opportunity of any stock in our client portfolios.

In March we outlined the fundamental case for Tesla, and none of the factors we outlined there have changed. (That note is attached below.) But is Elon Musk a problem? We don’t think so for the following reasons.

We believe that Tesla has moved past the phase which Musk called, “Production Hell” when he slept on the factory floor, micro-managing the crisis. Before Tesla, mass production by a new auto manufacturer hadn’t been achieved since Chrysler’s founding in 1925.  Tesla has moved past the invention stage and is now in the roll-out phase. This doesn’t just apply to cars, it also applies to factories.

With the opening of two new factories in the last year (Berlin and Austin) Tesla has created a template for future production facilities. They know what the next four factories will look like and it seems clear to us that current management can execute that plan without daily input from Musk.

As the new plants ramp up, the company will have the capacity to build 2 million cars annually. (Toyota and Volkswagen build 10 million each.) With an order backlog of over 400,000 cars there is no reason to think they won’t sell 2 million cars in 2023-2024. Extraordinary profits will follow.

Elon Musk will continue to over-promise, get distracted, and refuse to act the part of the traditional CEO. But Tesla, the business, will flourish.

Best regards,

Daniel A. Ogden

Disclosure: Dock Street Asset Management, Inc. and our clients own Tesla (TSLA). This article is not intended to be used as investment advice.

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