Tesla (TSLA), the electric car manufacturer run by iconic entrepreneur Elon Musk, is revved up and ready to reshape the entire transportation industry.
I would say “auto” industry, but the way things are going … let’s not set the bar too low.
The latest news is that Tesla’s Supercharger Network is going to be expanding, tripling the number of stations to charge your Model S by the end of June — with coverage from Vancouver to Austin, Texas and from Chicago to the metro New York City area.
Within six months, Tesla says, it will have spots in most major metro areas across U.S. and Canada, allowing you to travel from NYC to Los Angeles using only the Supercharger Network.
Oh, and did I mention the charges are free to Tesla car owners?
This news item comes after a slew of good press for Tesla, including:
- Tesla fully paid back Uncle Sam’s low-interest loans
- TSLA reported its first-ever quarterly profit
- The Model S the highest-ever rating for an automobile by Consumer Reports.
As a result, the stock has gone parabolic. Short-sellers have been squeezed out, with TSLA stock soaring from an IPO price of $17 a share to over $100 before Friday’s 7% selloff.
I’m not too sold on the stock right now, though. The slide isn’t what worries me either; bumps in the road are to be expected for any hot momentum stock. Instead, there seems too much froth even after Friday’s drop.
Still, as I said recently, Tesla is no flash in the pan. If the stock hits another similar bump, I’d be ready to jump in.
There are risks to the automaker, of course.
The company generated 12% of Q1 from selling its zero-emission credits to other automakers. In 2008, California set zero-emission vehicle standards that require Honda (HMC), Toyota (TM), General Motors (GM), Ford (F) and Nissan (NSANY) that fail to hit a certain quota of plug-in hybrids or pure electric cars. Rather than pay the fines if they fall short, the companies can simply pay Tesla in exchange for a credit allows automakers to count some Model S sales towards their EV quota.
It’s completely legal — and lucrative — for TSLA, but should these automakers develop rival cars that sell at scale, they won’t need the credits anymore.
Furthermore, as of May 14, 37% of Tesla’s float was still held short. The doubling of the stock in May was assuredly due to short-covering as bears bailed out more so than longs piling in at $100 a share.
While some investors want a piece of this long-term growth story — as it’s indeed compelling — it’s going to be down to good old-fashioned buyers alone to boost the stock once shorts aren’t there to cover anymore.
And given the meteoric run for TSLA, it’s more realistic to expect some profit-taking near-term.
All that said, I think Tesla is a compelling story and will be here for a while. Investors may want to consider buying on a pullback of 8% or more.
- Elon Musk says he got into the electric car biz because nobody else would. (Tech Crunch)
- More on Tesla’s “Hyperloop” charging network. (USA Today)
- On the other side: TSLA is flashing its hazard lights. (TheStreet via MSN Money)
- Tesla shorts suffering from heartburn. (BusinessWeek)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.