Hey, I’m Steven and this is Solving The Money Problem.
If you’re new, welcome. If you’re not, welcome back.
I’ve got news. Tesla stock is very volatile. Maybe you’ve noticed.
It’s not uncommon to see violent swings of 5-10%--or even more--within a single day.
So in this video I’m taking a look at why Tesla stock is so volatile and why I expect
this to continue for years to come.
But before we dive in, some words of caution.
If you do not have a plan, if you do not have the temperament to hold a stock as it swings
in value, if your emotions rule your decisions, if you will panic and worry and consider violating
your own rules when things get rough: you should not own the stock.
PERIOD.
If you can’t get your emotions under control, it’s better to sit on the sidelines than
do something dumb.
Really.
With that out of the way, we’re ready to roll.
Perpetual Disruption
Tesla is a perpetual disruption machine.
No industry or technology is safe.
They’re rewriting the playbook at every level from product design to manufacturing
processes to corporate structure and CEO compensation.
Along with this incessant upending of convention and an active disdain for the way things are
done, comes many setbacks, failures, hurdles, surprises and a lot of unwarranted attention
and criticism.
The speed and breadth of Tesla’s disruption is truly remarkable.
And it’s not making them a lot of friends.
It’s a constant David vs Goliath battle.
There are entrenched forces with VERY deep pockets who do not want Tesla to succeed.
Inevitably, in most cases this resistance is futile, but much of it can at least slow
Tesla down.
Not only is Tesla disrupting the automotive industry, but also dealer networks, the oil
industry, the insurance industry, the energy generation and storage industries and ultimately,
the transportation industry.
The more disruption Tesla causes, the more volatile their stock is likely to be over
the medium term.
Unrealised Potential
Watching Tesla innovate and execute is incredibly exciting.
Out of seemingly nowhere, they continue to find new opportunities.
Who would have thought in 2008 that a decade later Tesla would be focused on winning full
self driving and launching the world’s largest robo taxi fleet?
Or deploying grid-scale battery solutions?
Or creating virtual power plants?
Or developing innovative software like sentry mode?
Or basically cloning its most successful product into a slightly larger version, sharing ¾
of its parts in common and progressing from prototype reveal to production within less than a year?
Or being able to charge a few thousand dollars for over-the-air performance upgrades?
Or increasing range over the air?
The point is, Tesla is innovating like MAD.
There’s a LOT of untapped potential in the future of Tesla.
This too will contribute to the volatility of the stock.
Analyst Handovers
Today, most analysts covering Tesla stock are automotive analysts.
This would be perfectly fine if Tesla was an automotive company.
THEY’RE NOT.
Yes, they do make vehicles but software is HUGE and growing part of their business.
Software revenue is VERY high margin.
The automotive business is very LOW margin.
Not to mention Tesla’s solar and storage products.
At the end of the day, Tesla makes BATTERIES and SOFTWARE and both of those go in MOST
of their products.
An automotive analyst covering Tesla is like a blind person analysing a painting.
Their ability to see the whole picture clearly is limited at best.
Finally, Tesla stock is starting to make its way into the hands of tech analysts who can
appreciate the growth, high-margin software component, over-the-air-updates and see Tesla
more like Apple than Ford -- a company with a strong software AND hardware component with
some very high margin revenue streams on the horizon.
As this happens, we’ll see continued upgrades as these fresh eyes see potential that was
already obvious to anyone who actually looked.
Another driver of strong volatility.
Lots Of Moving Parts
When you’re growing as fast as Tesla, so many things can go right, or wrong.
Currently, Tesla is expanding capacity at Gigafactory Shanghai, building a new factory
in Berlin, integrating technology from recent acquisitions, ramping the Model Y, finalizing
the Cybertruck, rapidly deploying V3 of the Solarglass Roof, expanding its supercharging
network, preparing the Plaid powertrain, beginning to ramp the Semi, scouting new factory locations,
deploying its new megapack and banking BILLIONS in cash as they do so.
With so many moving parts, it’s inevitable that things will break.
The good news is that Tesla learns fast.
The bad news is that the media and markets tend to overreact to both good and bad news.
The more things that are going, the more things that can go right, or wrong.
This too will drive volatility. If a factory opens ahead of schedule, it’s a huge win.
If it’s delayed, not so good.
Future Execution
Closely related to the last point is Tesla’s future execution.
Today, Tesla’s stock price factors in some future success.
If Tesla was not growing revenues at a staggering rate, and was not poised to maintain a big
slice of the burgeoning EV market, the stock price would not be where it’s at.
This is all good and well when Tesla are executing flawlessly but any bumps in the road that
cause people to question their future execution may negatively impact the stock price.
Of course, my belief is that Tesla will do what they say.
We have a 15+ year track record of this.
But not everyone gives them the benefit of the doubt. One hiccup and the freak.
And of course, we also have stuff like full self driving.
Hardly ANYONE believes Tesla is on the cusp of solving full self-driving.
Aside from the likes of ARK Invest, most of the analyst community thinks full self driving
is 10+ years away.
As it becomes more obvious that autonomy will be solved in short order, expectations will
be adjusted and this is likely to impact the stock enormously.
Big Bears
Of late, it seems most of the Tesla bears are in hibernation.
Fair enough.
If I’d be on television saying Tesla was a $100 stock in 2019, I’d be cautious about
making another appearance so soon with the stock currently about 8 times that level.
But, some still cling to their convictions that Tesla is doomed. If they’re given a
big enough platform to talk smack, and do it effectively, this too can knock the stock
price around.
In the short term.
Big Bulls
Likewise, an influential Tesla bull singing their praises to a wide enough audience can
also move the stock.
If the bull is actually allowed to talk, that is.
A great example of this was a recent appearance from Ron Baron on CNBC. In pre-market trading
before the segment, Tesla stock went on a tear, almost in anticipation of Ron’s inevitably
bullish comments on Tesla.
Like this:
Now what’s happening. It’s just catch up. This year Tesla’s gonna do somewhere
around $32 billion dollars in revenues and I guess that they’re gonna do $100 billion
dollars in revenues within 4 years and I think that potential for a trillion dollars in revenues
within 10 years.
So basically, you’re looking at the VERY start of what Tesla--of what’s gonna happen
with Tesla. This could be one of the largest companies in the whole world.
[A trillion dollars in revenue in 10 years?]
That's assuming you do 10 million cars. There’s 90 million cars or 95 million cars that are
sold. Yes. And that's without the battery business.
So I’m think-we’re thinking $750 billion to a trillion dollars in revenues just on
the car business. Elon says that the battery business is gonna be as big as the car business
and in addition to that, when I’m thinking about 10 million cars a year, the last conver-uh,
conversation we had, he said it was 20 million cars is what he thinks he can do.
And so what we’re talking about is a business that right now, demand is overwhelming for
their product that they’re selling. And they’re constrained as far as making as
many cars as they could sell because they don’t have enough batteries.
[You’re clearly still very bullish but]
Yeah-I
[But it’s moved 80--it’s moved 80 percent uh, since the beginning of the year. Just
in terms of discipline in maintaining a portfolio, do you lighten up on any of that position
at all because you think--you know, I still have a large position even if I sell a little
and book some gains. Or no, you’re holding the whole thing?]
Not a share.
[Not a single share?]
No.
And in fact, one of the portfolio managers was speaking to me yesterday and he said “Ron,
shouldn’t we sell a little bit?” and I said “I’m not selling anything. This is
the VERY BEGINNING of when Tesla gets started.
[Right so here’s a question--]
I’m hoping we get more assets so we can buy more stock.
That same day, Tesla stock reached an all time high before coming back to reality.
FUD Campaigns
I hate to break it to you but Tesla has a lot of enemies.
Traditional automakers pay the bills of most finance shows (by advertising their vehicles
during the breaks).
Dealership networks are on borrowed time.
Automotive supply chains are toast.
Big oil is 100% completely and utterly
F**KED as sustainable
transport generation and storage become mainstream due to their lower cost and environmental
impact.
Their last resort is slinging s**t, also known as spreading Fear, Uncertainty and Doubt.
It doesn’t matter if it’s based in reality.
It just needs to tarnish Tesla’s reputation and buy them a little more time.
We see this often.
If you pay attention to press coverage on Tesla, it’s incredible to see the negative
bias.
We’ve seen sketchy “journalists” FAKE events like running out of charge, world-class
douchebags claim Elon Musk and Tesla are frauds, industry “experts” blatantly lie for minutes
straight on national television, clueless hosts make outrageously incorrect statements
and loads more.
I won’t bore you with conspiracy theories here but just know that a lot of interests
want Tesla to fail, and at the very least, to slow their inevitable progress.
Each time one of these clowns has some success in smearing Tesla, the stock price suffers.
Temporarily.
FOMO
I read ALL your comments and I notice trends. One of them is this.
For MANY of you, Tesla is your FIRST or ONLY investment.
This rings true more broadly than my audience.
It is true for MANY Tesla investors, period.
Some are inspired by Tesla’s mission.
Other’s its execution.
Others are simply Elon fanboys.
That’s all good and well.
But, his also means that many of you have no idea what you are doing.
You have no goal.
No plan.
No experience.
Inexperience is a great recipe for herd mentality.
Rather than knowing why you made a decision, you look to others to see their decisions
and copy.
If everyone’s buying Tesla, then so are you. Lots of buying pressure can drive the
stock price up.
If everyone’s selling Tesla, then so are you. Lots of selling pressure can drive the
stock price down.
If people, instead of thinking for themselves, are following the herd, this compounds the
stock’s volatility. A small selloff can become a huge one.
Big Milestones
Given Tesla is so bent on widespread disruption, there will be countless key milestones and
achievements that bode well for the stock price.
The day Tesla solves full self-driving MAY be the single biggest step-change in a stock
price ever.
Or, maybe they market fails to appreciate this accomplishment entirely.
Kinda like what happened in the wake of autonomy day.
Maybe it’s not until Tesla’s first robotaxis are operating that the market understands
what has been achieved.
Or maybe it’s not until the first quarter reporting the high-margin revenue from robotaxis
that people finally “get it”.
The completion of new factories at record pace is another likely catalyst for the stock.
As is the potential for future partnerships such as the licencing of Tesla’s battery
and powertrain technology to other automakers which in my opinion, is inevitable.
Unless other automakers would prefer to go out of business.
And then there’s new product reveals.
It may be a while until we see the next (possibly a compact car), but we need only look back
to the Cybertruck reveal to see how unpredictable Tesla’s stock price can be around product
reveals.
Quarterly Results
It wouldn't be a Tesla video without talking about financials.
It’s been truly stunning to see how the market reacts to Tesla’s quarterly results.
For example Q1 2019 was seasonally weak.
This was not surprising.
That’s the auto industry.
Yet most of Wall St either ignored or were oblivious to this fact, and others, sending
the stock tumbling.
This made literally no sense.
But it happened.
As a result, while people were panicking and selling the stock--and while online trolls
were harassing me about my existing Tesla stock holdings--I was selling my other stocks
and buying up BIG.
Until Wall St actually gets it, I expect that every quarter is a roll of the dice.
ANYTHING could happen after Tesla reports earnings.
Trading around these results is fraught with danger.
It’s just too unpredictable.
For now.
So what’s my point?
Tesla stock IS and will continue to be, VERY volatile.
Until everyone “get is” (as they do now of Apple and Amazon), it seems likely that
Tesla stock will remain VERY volatile.
They’re scaling fast, relentlessly innovating, endlessly disrupting and making big enemies
who don’t fight fair.
If you're investing for the long term, this is fine.
Short term volatility is irrelevant.
You buy the stock, you stick to your plan, and everyone’s happy.
But if you have no plan, or you’re driven by emotions not reason, you’re asking for
trouble.
If you can’t handle the heat, it’s best not to be in the kitchen.
I’m not joking around here guys.
If you don’t have a plan and the ability to stick to it, a train wreck may be just
around the corner.
If you’re a short term trader, good for you.
I hope the volatility serves you.
For everyone else, for those who believe in the company and its ability to execute, for
those who plan to hold Tesla stock for the long term just know that while the destination
may be the moon, you’re in for a very bumpy ride.
Have plan and stick to it,
or stay the f**k away from Tesla stock.
Remember, ANYTHING could happen tomorrow.
I’m Steven Mark Ryan, this is Solving The Money Problem and I love you all.
Thanks so much for watching.
Let me know your thoughts in the comments below.
Do you believe Tesla stock will remain volatile?
Can you handle the volatility?
Do you have a plan and will you stick to it or are your emotions in change?
And of course, if you have any ideas for future videos, let me know. I read ALL your comments.
p.s. If you’re still watching, you’re AWESOME.
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