Is Tesla Oversold?

Two months ago, in these very pages, I wrote that I had abandoned my long-term holdings in Tesla (TSLA) and viewed it once again as a trading instrument rather than an investment. That, I said, was because I expected to see two-way volatility in the coming months. Here is the chart for the stock since that piece was published…

I guess I was right but, as is usually the case, that was down in part to an analysis that turned out to be accurate, but mostly to a big chunk of luck. I couldn’t have known back then that Elon Musk would tweet out another of his 4/20 themed tongue in cheek statements, but this time feel obliged to follow through with it. Musk’s decision to actually buy Twitter (TWTR) is not the sole reason for the stock’s big drop to here, obviously, but it didn’t help.

Apart from anything else, he will have alienated even some of the most hardcore Teslarati by making that decision then letting it be known that he would reinstate Donald Trump to the platform as he did so. The people that bought Tesla as the poster child for the environment and the move away from the evils of fossil fuels are unlikely to be Trump supporters but are probably obsessed with the former President all the same. They may still like the idea of EVs, but not of investing their money in support of someone who let him back on Twitter. The desire to make an anti-Trump statement will outweigh their love of the environment, or even any sound reasoning about the business. Add in the investors that believe that an Elon Musk distracted by Twitter will lose focus on Tesla to that company’s detriment and, with hindsight, the big drop in the stock was inevitable.

There is, however, another way of looking at it, and that way is convincing enough to turn me back into a bull on Tesla as a long-term investment at these levels. Maybe, just maybe, a distracted Musk won’t be a bad thing for Tesla at all. Quirky, controversial leaders are fine in the early days of a company, and the kind of high-risk strategies they often favor can work well for some time. However, as the companies they found mature, that style, combined with a sense of invincibility that comes with getting so much so right for years, can become a liability.

Of course, the Musk saga isn’t the only reason that TSLA has been dumped. There are also the ongoing supply chain problems faced by all car makers and the fact that the Fed and other central banks around the world have started to hike rates and reduce liquidity in a way that threatens economic growth. Both of those things, however, are temporary by nature and Tesla has spent years localizing their supply chains and building a brand in order to withstand both of those things. The still triple-digit P/E ratio is a bit more of a concern in some ways, but the kind of growth they have exhibited once they turned the corner and started making money makes that almost irrelevant.

Ultimately, though, my change of heart comes down to something that I have said here and elsewhere many times. Markets are pre-programmed to overreact to news and events but, over time, everything returns to the mean. Musk’s distractions, supply chain problems, and tighter monetary policy have all weighed on TSLA over the last month or so, but those things too shall pass, and, put simply, the stock now looks oversold.