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According to AJ Bell, the most bought share based on number of deals placed by customers in the past week has been M&G. Tesla (NASDAQ: TSLA) is only the seventh-most popular stock.
However, Tesla has easily been the best-performing share so far. It’s up 20.4%, meaning anyone who invested £10,000 a week ago would already have about £12,040.
Of course, that’s a fantastic return in such a short period time. And while I often think it looks grossly overvalued, this rapid surge demonstrates perfectly why I don’t short the stock (bet against it). It can literally rise or fall 20% at the drop of a hat!
What’s going on?
As has been widely reported, Tesla has encountered a few difficulties lately. Competition is rife and many inflation-ravaged consumers are putting off big-ticket items, including brand new EVs. These challenges haven’t gone away for the company.
In Q1, Tesla’s net income plunged 70% year on year to $409m (a 2.1% margin). Yet, since that was announced on 22 April, the share price is up 44%!
On the surface, this makes no sense. Were Nvidia or Amazon to report such a drop, the share price response would almost certainly be the polar opposite (or even much worse). This makes Tesla unique among ‘Magnificent Seven’ stocks (and nearly every other company).
Selling the vision
Recently, there were reports that Tesla’s board was searching for a new CEO to replace Elon Musk. This was quickly denied by the company, with Musk calling it “fake news“.
I can understand the appeal for some investors. They think Musk has done the Tesla brand irreparable damage, while spreading himself too thinly due to his other commitments (both commercial and government-related). A seasoned auto executive is what is needed, according to this thinking.
Personally, I think such a move would be a grave mistake. Only Musk and his appointed team have the vision and willpower to drive Tesla towards a future filled — possibly — with millions of Tesla robotaxis.
Look at General Motors, which last year effectively shut down Cruise, its robotaxis subsidiary. It did this to stem losses and improve profitability. This was hardly surprising, as the time horizon of legacy auto executives rarely stretches beyond the next few quarters.
In contrast, Elon Musk’s vision extends to the stars and beyond, literally. Were a seasoned auto executive to come in and assign the ambitious robot projects to the dustbin to improve profitability, the market value of Tesla would likely collapse.
Tesla is not valued as a car company, so it makes no sense to bring in an industry executive, in my opinion. Musk continues to sell the vision that Tesla will become the world’s largest company by far. It’s valued on that potential.
Crunch time
Next month in Texas, we’re expecting to finally see Tesla robotaxis out in the wild. Where the stock heads next will largely depend on how that goes. Even if successful, it’s entirely possible the share price pulls back significantly (investors often ‘sell the news’).
Some see robotaxis driving Tesla to a $10trn market cap, up from $1trn today. We’ll see. For me, I’m going to pass on the stock because it’s too expensive. But I still wouldn’t bet against it going higher with the robotaxi launch on the horizon.
