Tesla Motors (TSLA) is the hottest stock on Wall Street, with 340% gains year-to-date. But Tesla stock hit a speed bump Wednesday as Stifel Nicolaus initiated coverage on TSLA with a “hold” rating.
Tesla stock analyst James Albertine said there was risk on the horizon with competition just 12 to 18 months away. In his view, Tesla stock is at risk as the Model S must fend off both lower-priced electric vehicles as well as higher-class luxury offerings from major automakers Honda (HMC), Toyota (TM), General Motors (GM), Ford (F) and Nissan (NSANY).
In other words, while first-mover advantage has catapulted Tesla stock to new heights … it might not last much longer.
I would be careful with that argument, though, if you’re thinking of selling or shorting TSLA based on this view. In early August, I wrote that the shorts were going to be proven right at last on Tesla stock, and a subsequent double-digit rally made me look like a buffoon.
Tesla stock continues to run because of a strong backlog, increased profitability — even though a few months ago TSLA was predicted to be bleeding red ink — and critical acclaim from consumers and reviewers alike.
The Tesla Model S won the highest-ever rating from Consumer Reports and more recently won the highest five-star safety rating from U.S. safety watchdogs. So if you think that it’s just a question of competition eating Elon Musk’s lunch, you might want to rethink your investing strategy.
Tesla Stock Momentum
There are indeed risks for Tesla stock, and shares are obviously frothy after quadrupling in roughly half a year. Part of me still thinks the TSLA rally will eventually end in tears as Tesla stock’s momentum story wanes and turns into more reasonable growth.
But as for when that momentum wanes … well, we just don’t know. But until then, there clearly are profits to be made. While Tesla indeed might see more competition in 12 to 18 months, there’s no guarantee that those competitors will catch on immediately or that Tesla won’t have other tricks up its sleeve.
I’ve personally been burned betting against Tesla stock just because of the idea that it can’t keep up this run forever. So I hope Stifel Nicolaus has a better argument than the simple idea of competition knocking TSLA stock from its perch.
Related Reading on TSLA
- Tesla is safe as well as sexy. (The Slant)
- The latest Tesla earnings details. (USA Today)
- Tesla stock has made “Teslanaires” out of believers. (Mercury News)
- David Trainer warns TSLA is looking bubbly after its run. (Forbes)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.