With Tesla (TSLA)’s stock price soaring to a sky high in recent weeks, it seems like the electric car company can do no wrong, at least to investors. This week, the company beat the odds yet again, defying Wall Street’s expectations for a down earnings report by revealing a surprising $104 million (GAAP) profit in the pandemic-ridden second quarter.
Since any hype for a blockbuster quarter was already fully baked in the stock price, Tesla shares didn’t see any markedly wild swings after the earnings release. At $1500 a share, it’s hard to see much volatility. The bigger questions are more geared toward long-term investment: Where is Tesla going next? How long can it sustain the $300 billion valuation? And what will it take to stay there?
Depends on who you ask. Bears on Wall Street, including Morgan Stanley, think Tesla is increasingly looking like the face of a giant tech bubble about to burst.
“Tesla is currently a bubble stock. Both it and the Nasdaq are on their final run,” Clem Chambers, CEO of ADVFN, an information site for stock, commodities, cryptocurrency and other assets, told Observer. “Both are seeing a massive vertical, which is a classic end of bubble move.”
Other investors are higher on the company—provided it focuses its long-term planning on one of its more unheralded divisions.
“Investors need to focus on whether or not Tesla can continue to move beyond being just a car company,” Tim Bain, president and chief investment officer at Spark Asset Management, told Observer. “In order to justify a valuation that can continue to grow at above-market rates, I believe investing in Tesla today requires you to believe that they will move into energy production and storage.”
Drawing attention Tesla’s growing solar panel and battery pack business, Bain said people are “missing a big part of the story” when comparing Tesla’s valuation to that of peer automakers. “Tesla benefits from a world where major corporations are talking about becoming carbon neutral,” he said. “My question is: what will happen to traditional electric utility companies 10 years from now if we are all ‘our own utility?'” (Bain and his clients own Tesla stock.)
That opinion is echoed by Social Capital CEO Chamath Palihapitiya. “This is no longer about cars…If you ask me as an investor, [the bet] is in Tesla’s energy business,” he said on CNBC TV Thursday morning. “Tesla has said a few interesting things about that in their earnings report. First, it’s profitable. And second, they are now producing software that allows anybody to become a distributed utility. Think about it for a second, it’s one of the most predictable and reasonable businesses [to own].”
Solar and energy storage sales is currently just a fraction of Tesla’s total business, but it’s already showing great promise. In Wednesday’s earnings release, Tesla noted that its Megapack energy storage product, launched last year, turned profit for the first time in the second quarter.
“There’s a lot of demand for the product and we’re growing the production rates as fast as we can,” Drew Baglino, Tesla’s head of powertrain and energy engineering, said during Wednesday’s earnings call.