As published on Market Watch on July 12, 2017
Stock price volatility is natural in emerging sectors and with compelling brands. Tesla is a case in point. Tesla shares started the year in the low $200s and approached $400 by the end of June. Now it sits in the low $300s. Such dramatic swings require a certain faith for an investor.
This most recent share-price drop appears to be about Tesla’s TSLA, +0.45% ability to deliver its new Model 3 to pre-order buyers on time. Is this volatility a blip that Tesla can shake off, as has been true of Apple AAPL, +0.80% , AlphabetGOOGL, +0.55% , Amazon.com AMZN, +0.20% , and Facebook FB, +0.51% ? Despite stormy periods, these companies have seen their market valuations soar.
Tesla has been a bet on the future, more than an investment based on actual sales revenue and profits. That makes Tesla’s stock inherently bumply. Indeed, volatility is common to any industry facing dramatic disruption, both to incumbents and new players. Tesla has every chance to keep growing, and growing stronger. Tesla’s corporate structure is less-encumbered than its peers and its production costs are declining.
Tesla has been a bet on the future, more than an investment based on actual sales revenue and profits. That makes Tesla’s stock inherently bumply. Indeed, volatility is common to any industry facing dramatic disruption, both to incumbents and new players. Tesla has every chance to keep growing, and growing stronger. Tesla’s corporate structure is less-encumbered than its peers and its and its production costs are declining.
Disruptive companies are likely to continue growing rapidly and command superior valuations as money making opportunities of the so-called clean economy grow. The question is whether Tesla is moving from disruptor to disrupted. Volvo’s entry into electric vehicles, for example, is just one major challenge the company faces.
Yet Tesla’s unique position as a tech-stock darling, combined with its manufacturing business sense (market, sell, assemble, ship, deliver, and service), suggests that investors will continue to place frenzied bets on Tesla as the standard-bearer of the next industrial revolution.
Consumers increasingly prefer and demand cleaner, greener, and more equitable companies and economic activity. Businesses are being asked to provide safe working conditions and a fairer share of the financial upside to employees. Those trends alone will drive more volatility in markets and continue the dramatic disruption of entire industries.
Tesla and CEO Elon Musk are ahead of this curve. Musk is becoming an heir to Steve Jobs, or even Warren Buffett. Musk’s ideas and influence alone can move markets. Could his star power burn brightly for years?
My sense is that it will. Musk a master craftsman of public imagination. That’s an enviable personality advantage. Musk’s allure can generate billions of dollars in value for Tesla and makes the stock a powerful long-term play.