Published on November 26th, 2018 |
by Zachary Shahan
November 26th, 2018 by Zachary Shahan
This is a simple piece. To be fair, there’s very little beyond the headline to think about, but it’s something that popped into my head a few weeks ago and I don’t think I’ve seen the precise points I’m mentioning in this article all made together in one spot before.
It’s well known that there’s a kind of investment strategy (and just simple-person habit) of buying stock in something you use and love. Coca-Cola Company stock comes to mind — I remember my uncle teaching my cousin about investing and getting him some Coca-Cola stock. Apple, Netflix, and Amazon are more recent champions of this “I dominate your life, so you better invest in me” investment theme.
So, I got to thinking, with Tesla sales shooting through the roof, there’s a decent chance a lot more people will buy a few shares of Tesla [TSLA] stock this quarter, next quarter, the quarter after, etc., etc. They will presumably then add to their shares of the company over time as they have more free capital to invest.
However, there is actually a little more to it than that. Before I get into a few amplifiers, though, I’ll backtrack a bit and note that, yes, not every Tesla owner is going to buy Tesla stock. Plenty of people, even Tesla fans, are averse to the volatility or just have an investment strategy that doesn’t mesh with Tesla’s stock price or buying stocks in general. That said, I stand by my point that many people who suddenly discover Tesla and buy a Tesla vehicle or two for the first time will also be inspired to invest in the company — often a few days or weeks after getting the vehicle into the garage.
There are a couple of things about Tesla that supercharge this natural investment effect. First of all, as Kurt Lowder recently explained quite eloquently, Tesla is on the frontlines of climate action. One of the best things you can do for the environment — if not the best, as he argued — is support the company by buying its products. Many people are concerned about global scorching and are getting more concerned by the month. As more of those people end up buying a Tesla or two, they may also feel compelled to invest in the company as another way to “do their part.” I’d say a good chunk of retail investments in Tesla (if not also institutional investments) originate from this kind of thinking. I’ve certainly seen people write and heard others say that they’ll stick with the stock through anything because they see its survival and growth as critical to getting the climate under control. This narrative and the notable real-world result already makes Tesla stock a rather unique case, imho.
Secondly, it’s no secret: people who buy Teslas have money. They tend to have a discretionary spending bank account that is ginormously bigger than the average human’s — or even the average American’s. In simpler terms, if you own a Tesla, there’s a high chance you have a ton of money you could potentially invest in the company. Now, if you have that amount of money and you’re passionate enough about Tesla the company or specific Tesla products to spend tens of thousands of dollars on a car, or even $100,000+, then you may well think that Tesla has under-appreciated potential not yet reflected in its stock price. That’s basically the description of a stock that is a good investment — under-appreciated potential not yet reflected in the stock price.
These unique factors make me think Tesla stock is primed for massive growth in the coming years. (Note: That doesn’t mean I’m giving investment advice here. I am not! Please don’t risk your money based on my opinions alone, as I don’t want to be the one to blame if your investments go south.) It’s just hard to imagine that the high net worth of average Tesla buyers and the growing climate crisis and related growth in mission-driven investment strategies don’t lead to significantly more investment in the company in the coming years.
However, even ignoring those unique circumstances and getting back to the basics for a moment, two things seem as obvious as can be in this sector: 1) Tesla is going to see massive sales growth in the coming years (with the existing fleet of daily Tesla drivers growing strongly for years to come since the company isn’t even old enough for many Tesla vehicles currently on the road to be retired to the junkyard for another decade or longer), and 2) there’s going to be a significant uptick in Tesla [TSLA] awareness as well as many more people learn what Tesla is, see and ride in a Tesla vehicle for the first time, and eventually drive a Tesla. Remember, CleanTechnica readers are far outside the norm. The average person on the street probably couldn’t tell you what kind of products Tesla sells. Looking at those two factors alone, it seems lucid that that Tesla stock is more likely to follow the long-term historical growth curve of Google, Facebook, Amazon, Apple, or Netflix stock rather than the recent stock trends of GM, Ford, BMW, Daimler, and Volkswagen stock.
I’ll just be super duper clear here to avoid any trouble with grumbling TSLA bears and skeptics: The point of this article is not at all to try to encourage anyone to buy Tesla stock. I just find this a super interesting — if simple — point of reflection. Actually, an implied message in the article is that I don’t see why anyone who wants the Tesla stock price to grow would feel a need to pump it up — as Tesla sells more vehicles (millions of them), plenty more retail investors will buy Tesla stock organically. The products are too good — morally and from a user perspective — to not inspire that kind of investment activity. As sales ramp up and retail investors fall in love with the company more and more, I presume that will also lead to more institutional investments. Getting added to the S&P 500 shouldn’t hurt either, and a few quarters of profits should be all that’s needed to prove to the more cautious among us that Tesla is a sound and secure company that is here to stay.
Do you have any other thoughts on this topic? Think I’m far off base with my belief that sales growth will lead to significant retail investment growth? Think I’m on point but want to add in some more figures and forecasts? Think there are stronger counter-effects that make my argument irrelevant — like Tesla shareholders cashing in their shares in order to buy Tesla vehicles, solar roofs, Powerwalls, and electric bikes? Think the volume of Tesla sales are still small enough (not at the level of Facebook adoption or Coca-Cola consumption) to have a rather limited effect on stock purchases?
I’m eager to hear and read more opinions in support of or opposition to this thesis, so please chime in below.
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