Earlier last week, Mr Budget finally made the call to initiate a position on Tesla, despite its insane price level, and we wanted to pen down our quick post mortem thoughts on the counter.
For some context, Tesla, which is well known for producing its electric cars, also manufactures battery energy storage, solar panel and solar roof tiles.
Its share price had more than tripled since January this year alone, an impressive feat for any company. If you look at 1 year ago today, its share price was just at USD253, and had grew more than 6 times to its current price of USD1544.
And it seems highly unlikely that the stock price will continue going up because it will need to reach USD3,000 per stock to give a 100% return based on the current price level.
Its current market cap also surpassed Toyota’s market cap, making Tesla the most valuable automobile company in the world. For additional context, in 2019, Toyota sold over 10,000,000 units globally, while Tesla only delivered 367,500 units. That’s 3% of what Toyota has sold!
Now that the context is set, so why did the share price skyrocket?
While there are probably a lot of professional articles out there talking about this, we will pen down some quick thoughts on why we initiated a position on Tesla.
Unfair First Mover Advantage
One of the main reason is that Tesla has a clear and unique first mover advantage.
Having a first mover advantage actually gives the company a serious unfair advantage and the company will most likely continue to reap the benefit of that position.
For another company to come in and compete with Tesla, you would need a huge amount of expertise, production line set up, and not to mention for the market to accept and buy your production.
Strong Pent Up Demand And Cult Like Following
Which leads me to my second point, Tesla seems to have built up a strong cult-like brand following. And we should have saw it coming. Ever since 1-2 years ago, Mr Budget has been hearing friends raving about how great Tesla is, and that if the brand is in Singapore or Malaysia, they will snap buy the car.
For people who actually owns Tesla, they are all brand ambassadors too, talking about how great the car is.
So there is actually a very huge pent up demand for Tesla all around the world, and the problem now is that Tesla can not keep up with the demand.
If Tesla is available in Singapore now, we would also be seriously thinking about getting a Tesla.
Going back to Toyota’s sales figure again, current Tesla production is only at 3% of what Toyota is doing, and there are definitely a lot of market share for Tesla to grab.
What we also noticed is that the share movement of consumer products is often strongly correlated with its brand love.
Take Zoom for example, when everyone was raving about zoom, Zoom’s share price grew from USD68 earlier this year and skyrocketed to USD275 now in just 7 months. Even if one were to buy it last month, one would be sitting at a +13% gain.
Netflix had the same story too, at one point, everyone was talking about Netflix and the brand actually became an adjective – let’s Netflix and chill. Netflix’s share price grew from USD114 at Jul 2015 to now USD548, more than 4 times its price 5 years ago.
It’s actually a shame that we didn’t see Tesla’s potential sky high share price coming 1-2 years ago, but of course, hindsight is 20-20 and it’s very easy for us to say that.
Global Shift Towards Electric Automobile
One final point that we want to talk about Tesla is that, globally there is a slow shift towards electric automobile.
This shift is slowly but surely happening, and Tesla as a company is leading the charge for that.
And I think there are also a lot of plans for Tesla to venture into software as a service, and talks about how one can just “order a Tesla on demand” to move you from point A to B, although that’s just a pipe dream for now.
Finally, we also want to note that this is a pure speculative position, because the share price beats all fundamentals and it doesn’t make any sense at all. No matter how we wrap our head around the price level, it didnt make any sense at all, leaving us frustrated with the continued rallied in price.
And then we realized, if you cant fight them, join them. LOL but actually this is bad advise.
Hence we took a relatively small position on Tesla to stay invested in case the bulls keep pushing the price upwards, and that the current high will be the new low.
Another reason why we bought Tesla is because it gives us a valuable peace of mind, because now Mr Budget won’t have to anxiously track Tesla’s share price daily. If the price of Tesla do come down, we will be more than happy to average down on our position.
Our entry price was at USD1,393.50 last week, and it has gone up 10.85% to USD$1,544.65. Tesla is set to release its Q2 earnings in less than 2 weeks, and hopefully we hear positive results from the company.
Tesla will also be a new addition to our coffee can portfolio, and hopefully 5 years later when we review our coffee can portfolio, we will be happy with our position in Tesla.
This does not constitute a call to purchase Tesla stocks, and we should reiterate again that their price level is out of explanation as we’ve mentioned.