I'd appreciate any help (particularly from
@DaveT,
@neroden @TradingInvest etc. ) showing a close friend that staying invested in TSLA for the next ~year is a wise move.
Reminder #1: the market anticipates.
If he thinks the future for Tesla is bright but the "next year or two will be bumpy".... there's very high odds that the stock will go up NEXT YEAR and then stay flat for a few years. Look at what happened in 2013-2014, a very bumpy period for Tesla's actual operations when the stock skyrocketed -- followed by a period when operations improved and smoothed out from 2014-2017, during which the stock did nothing.
Your friend is trying to time the market and that's a good way to lose out on all your gains.
I thought Tesla was going to languish in the $200s from last September until roughly now. Imagine how badly I would have done if I'd tried to time it! I didn't try to time it; I bought in heavily last fall. He should not try to time it either, unless he has a long record of successful stock timing (and I'm sure he doesn't, almost nobody does).
Back in 2013, I rode my $30-basis TSLA shares up to $180, back to $120, up to $240, back to $180, up to $280, back to $200... if I'd made the rookie mistake of trying to time it I probably would have missed all the gains and been in for the drops!
Reminder #2: you can project Tesla's profits.
Tesla's gross margins are not "speculation". They are reading numbers off a balance sheet. You may have to speculate at how fast the SG&A will grow, and you certainly have to speculate about when they'll hit production volume targets, but you don't have to speculate about the gross margins. The mere fact that your friend is confused about this shows his lack of understanding.
There is good reason to expect high gross margins from a fully automated production line, based on basic principles.
Furthermore, my valuation models vary in result *primarily* based on the number of Model 3s produced; wiggling the gross margins around doesn't really change the value much. This is an economies-of-scale business, period. The low-production-number models admittedly give me long-term TSLA valuations around $200, so I am betting on higher production numbers (as is the entire company).
Reminder #3:
Comparing to the valuations of other Western automakers is idiotic; their valuations are depressed due to bad management, legacy ICE businesses, a history of fraud, and a broken dealership business model, among other things. If you are going to compare to valuations of another auto company, look at the Chinese auto companies.
Reminder #4:
Tesla has never had any trouble raising cash.
Reminder #5: as pointed out before, your friend is off on the number of shares outstanding by a factor of 1000. Really, it's important to be at least using the right order of magnitude.
Your friend writes:
Finally, a quote from an analyst who's a little bearish on the stock: "Tesla can win as a company — but TSLA can still lose as a stock. At a certain point, even fantastic, transformative, growth is priced in."
This is certainly true as a general statement. However, what would your friend rather invest in? Cash? If so, fine, nothing wrong with excess conservatism. Take money off the table, sleep at night, as long as you don't feel bad about missing out.
If he would put the money in other investments, however, I see things which are deeply deeply wrong with almost anything else he could invest in, things which have much worse downsides with much higher odds. Perhaps you could point him to my analysis some time back of why Tesla will survive a nasty recession/bear market and most "blue chips" won't -- essentially Tesla is riding on the tailwind of the great energy transition, and most stocks aren't.
I always say, it's more important to sleep at night than to make money (I've been violating this a little lately, sorry to say...), so if your friend is uncomfortable, if it's keeping him up at night, by all means, he should sell and put his money in FDIC-insured bank accounts, or if he's really conservative, rolls of $100 bills in a safe deposit box.
If he was thinking of reinvesting the money, though, he'd better look at the risk profile of the alternative, and I'll bet it's worse.
