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Battery Day: A Make-or-Break Moment for Tesla

Written by Jason Stutman
Posted August 29, 2020

At a market cap of $395 billion, Tesla Inc. (NASDAQ: TSLA) now ranks as one of the 15 largest companies in the world. After a truly insane six-month rally that kicked off in March, the automaker is now valued more than Toyota, Honda Motor Co., General Motors, and Ford Motor Company… combined.

If you’re starting to feel like Tesla’s stock is disconnected from reality, you’re not alone. The short volume ratio on Tesla breached 28% this week, meaning nearly one-third of Tesla shares currently being traded are short.

Of course, Tesla shorts have been burned before and the whole lot of them might be looking pretty clueless right now to the bull camp. No doubt, many of these bulls are actively relishing the shorts’ recent misfortune and Tesla has had no qualms egging these folks on. In July, the company began selling “short shorts” on its website for $69.420 as a means of poking fun. You can now buy a pair of those sold-out shorts from a third-party vendor for a whopping $5,000.

If this doesn’t highlight the absolute insanity surrounding Tesla well enough, perhaps its wide range of price targets does. On one end, you have GLJ Research with an $87 price target on the stock by the end of next year. On the other, you have ARK Invest with a $7,000 target by 2024.

Now, you might be wondering how professional analysts could come to such drastically different conclusions. It seems bewildering, but there’s a relatively simple answer — we have one camp valuing Tesla like an automaker and another valuing it like a Silicon Valley tech company.

Working under the assumption that Tesla is just an automaker, it is very easy to argue that the company is overpriced. You can buy General Motors (NYSE: GM) right now at a price-to-sales ratio of just 0.37 while Tesla shares offer a ratio of 16.13.

Another way of putting it is like this: Tesla is 44 times more expensive than General Motors on a revenue basis. As for income, the numbers work out about the same, Tesla being 40 times more expensive when you look at the bottom line.

Tesla bulls argue, though, that this isn’t a fair comparison. From their perspective, Tesla is more than just an automaker — it is a technology company disrupting everything from cars to energy. Self-driving is coming soon and Tesla is years ahead of the competition. Tesla is making solar panel shingles and battery banks. Heck, it even has a bulletproof truck!

Of course, Tesla has yet to prove it can earn significant amounts of revenue from anything other than EVs or tax credits, but it’s not the present that has shares rallying — it’s the promise of what comes next. You either choose to believe in it or you don’t.

Personally, I think the day of reckoning for Tesla shareholders is coming very soon but at the same time you won’t find me shorting the stock. The risk is simply too big and I’d rather just keep some puts rolling. 

That said, I’m not interested in discussing the bull or bear case for Tesla so much as I am in under-the-radar, adjacent investment opportunities. You see, while Tesla may be snagging all the headlines right now, it is far from the only way to invest in the global electrification trend.

As many already know, Tesla’s “Battery Day” event will be held on Tuesday, September 22, after its annual shareholder meeting, less than a month from today. There are rumors circulating that the company is going to make a significant announcement in terms of battery technology. There is even promise of a battery that can last a million miles over the course of its lifetime.

What Tesla really needs to justify its sky-high valuation, though, is a battery that offers a longer range and a significantly faster charge time. The reality is that no one wants to sit at an EV charging station for 40 minutes every time he's running on empty. No one wants to have to recharge this way every few hundred miles.

Simply put, EVs need to make a major advancement in battery technology before going truly mainstream, and we’re unlikely to see that in the current form of lithium-ion batteries. If Tesla doesn’t unveil such a battery next month, it could be in trouble because the rest of the auto industry is aiming to leapfrog its way ahead of Tesla with a new paradigm: solid-state lithium ion.

Where conventional batteries use a liquid electrolyte, solid-state batteries use ceramics or polymers designed for higher energy density. Most experts in the field recognize that solid-state batteries are the next step in rechargeable battery tech. Whoever figures out how to implement solid state in a scalable way will have a massive lead over the rest of the industry because this model significantly reduces charge time while also increasing capacity.

Needless to say, anyone investing in technology should be interested in these developments and any publicly traded companies involved in solid-state batteries. There are only a few stocks that immediately come to mind.

In addition to solid state, there are other incremental improvements to the efficiency of electric vehicles worth investigating. One of these is a technology platform that makes electric motors more efficient. These so-called “smart motors” are just beginning to hit the market, and I think it’s one of the more compelling stories out there in the electrification space right now.

We’ll have more information on solid-state batteries in the near future but in the meantime, I recommend learning more about smart motors. My colleague Alex Koyfman has the full scoop summarized in this free presentation.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and Topline Trader. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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