There nothing like a stock hitting a new all time high to vindicate a decade of intensive, on the ground, hands on research.
That’s exactly what happened yesterday morning when Tesla (TSLA) hit a new all time high, topping $304.
That is a 19-fold return on the $16 price at which I first recommended the stock after the flippers bailed from the 2010 initial public offering.
Do a search of my website, and you will find that Tesla is the most frequently mentioned company during the ten year life of my service.
Buy my best selling book, “Stocks to Buy for the Coming Roaring Twenties” and you’ll find three entire chapters devoted to this groundbreaking, icon smashing firm.
The company’s revolutionary manufacturing, sales, and management strategies have made it the second largest car company in America in a mere decade, with a market capitalization of $49.6 billion surpassing Ford Motors (F) only yesterday.
Throughout this entire time, the company has made no real money to speak of, and has been one of the most heavily shorted stocks in the market.
But enough kudos, hurrahs, and back patting for myself.
There is something going on here that is much larger than Tesla.
For the real story may be not so much the success of polymath Elon Musk than the demise of the traditional US auto industry business model and a fundamental rethinking of the use of the automobile itself.
Look at the Detroit Big Three, and it is like visiting an assisted living facility inhabited exclusively by ninety year olds.
The product quality is poor, innovation is lagging, and the companies have evolved into vast siloed bureaucracies.
Tesla tweaks its assembly lines daily. I’ve been visiting the Fremont factory now for four years, and I’ve seen it with my own eyes.
A change that takes Tesla an hour to implement requires six months of committee meetings at General Motors (GM).
Frequent, tedious, and expensive recalls by the Big Three are fixed by a free overnight software upgrade at Tesla.
It is the classic buggy whip versus rocket ship comparison.
And here’s the really scary part: The stock market knows this.
Do any value scan of big cap stocks, and (GM) regularly comes out at the top. With a price earnings multiple of only 5.5X and a 4% dividend, how could it not?
But one portfolio manager’s value play is another’s value trap.
Since the beginning of 2016, GM’s shares have gained a scant 6% in a rising market. Tesla’s are up by an eye-popping 44.76%, despite executing a major $750 million capital raise along the way.
By the way, Elon Musk soaked up $25 million of the deal for his own account, a huge “tell for other investors”.
What Mr. Market is telling us is that capital is moving out of old technologies into new ones. It is migrating from arthritic business models to cutting edge ones. It is evolving from the past to the future.
Look anywhere in the car space and the data flow aligns with this view.
“Peak autos” is on, with US sales topping out at a decade plus high of 17.7 million units annualized in July, 2016. Yesterday, that number dropped to only 16.62 million units.
Used car prices have collapsed, demolishing the shares of Hertz, a major auto owner.
Seemingly out of sync with the rest of the debt markets, car loans have hit a default rate of 3%, up from an historic average 0.50%. Apparently, giving away auto loans for free, with zero interest rates, isn’t cheap enough.
The car resale industry is getting smashed, with the shares of CarMax (KMX) and AutoNation (AN) performing a serious swan dive.
And every month, ride sharing services like Uber and Lyft grab a growing share of the transportation business. I wonder how many Millennials are actually going to BUY cars?
This is a big deal, since the automobile industry is a major leg of the entire US economy.
It would be a short step to conclude that the demise of the old line US car industry would have cataclysmic consequences for the stock market, and could bring the eight year bull market in stocks to a screeching halt.
Will the US government have to make a round trip on its GM ownership?
But you could be wrong.
Which company has been immune from the secular downturn in the auto industry?
Tesla, of course.
The company produced 25,000 cars during Q1, 2017, the most ever.
It is on track to build 500,000 cars a year by 2021. Some 400,000 individuals have placed a $1,000 deposit to buy the new $35,000 Tesla 3, out later this year.
And here’s the interesting part.
Add up all the losses in market capitalization for the entire US car industry over the past year, and it only amounts to a FRACTION of the gain in market cap by Tesla over the same period.
In other words, money is flowing INTO the auto industry, not out, unless you count Tesla as a technology stock, which it is.
Investors aren’t fleeing the auto industry, they’re just reallocating within it.
They did they same 100 years ago when capital moved from saddleries, wagon builders, and buggy whip makers to a nascent auto manufacturing industry in Detroit.
As for Tesla, call me MAD, but I believe there is another ten-bagger move in the shares from here over the next decade.
And go buy the damn car! They’re fantastic!