Why Tesla Stock Will Prove the Shorts Wrong
May 7th 2013 11:11AM
Updated May 7th 2013 12:05PM
Tesla Motors just can't seem to shake off the short sellers. Last year, Tesla stock was the fourth-most-shorted stock in the U.S. However, the company has passed many milestones since then. In fact, investors pushed Tesla stock higher by as much as 59% since the start of the year. Yet, the impressive run in the stock has some investors betting against it. Here's why I think the shorts are in for a bumpy ride.
Succeeding where others failed
It's easy to see why critics of electric-vehicle technology are betting against the company. For starters, widespread EV adoption is still years out, not to mention EV manufacturers are dropping like flies. Two major electric carmakers, Fisker Automotive and CODA, have struggled to stay afloat. CODA filed for Chapter 11 bankruptcy protection this month. Meanwhile, Fisker recently laid off about 75% of its workforce. Additionally, some may remember A123 Systems or Fisker's battery supplier, which also went bankrupt.
These examples aren't particularly encouraging for Tesla. However, lumping Tesla together with these dying companies is a mistake. Similar to Fisker, Tesla borrowed money from the U.S. department of energy in 2010 in order to get its operations off the ground. Yet, unlike Fisker, Tesla is not only paying back the DOE loan, but also doing so five years early.
This is a monumental achievement for Tesla. Particularly at a time when many politicians are using the Fiskers and A123 Systems of the industry to garner support against the DOE's alternative energy loans. Paying back its loan early is only one of many ways that Tesla is setting itself apart from industry peers.
A stock to own for the long run
One key mistake made by short sellers is to value Tesla stock by the same metrics reserved for traditional auto manufacturers. Tesla isn't Ford Motors. As a disruptive upstart, Tesla is a long-term play. Only investors with a stomach for volatility and a time horizon of at least a five to 10 years should own Tesla stock.
Separately, the launch of Tesla's Model S in Europe later this year is another catalyst for the stock. The company plans to begin European deliveries of its Model S as soon as July. On the home front, Tesla recently announced new financing options for its cars that should help more potential buyers pull the trigger.
Finally, the company is expected to post its first quarterly profit when it reports earnings on May 8. Tesla CEO Elon Musk has made a name for himself by exceeding expectations. Under his leadership, Tesla delivered its Model S ahead of schedule, became the first electric vehicle in history to win Motor Trend's "Car of the Year" award, and now plans to pay its DOE loan back five years early. Therefore, I wouldn't be surprised if Tesla were to top analyst expectations when it reports first-quarter results on Wednesday.
Looking ahead, I have no doubt that the disruptive strength of Tesla's business model will push Tesla stock higher from here. It's time for the bears get on board or prepare to get burned... again.
Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.
The article Why Tesla Stock Will Prove the Shorts Wrong originally appeared on Fool.com.Motley Fool contributor Tamara Rutter owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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