NEW YORK (TheStreet) –– Many commentators have connected the recent decline in shares of Tesla Motors (TSLA) to the drop in oil prices, but the argument ignores the facts and provides a buying opportunity for anyone smart enough to sift through the noise.
Bespoke Investment Group (courtesy of The Wall Street Journal) put together a chart that shows the correlation between shares of Tesla and the price of oil. Guess what? The correlation is 0.
Tesla is going to have 50% year over year topline growth for the foreseeable future because it can't meet demand. Tesla is an inherently volatile stock, so cherry picking a few weeks' worth of a decline in oil prices is not causation. If there were cracks on Model S numbers or concerns about the X, I could see that. If investors think the decline in oil is going to hurt the Model 3, it's almost absurd to make that argument -- not for a car 3 years into the future that hasn't even been designed, built, or had the necessary infrastructure built for.
INSERT: Tesla's demographic, primarily the wealthy (the starting price of the Model S is $63,570 including incentives) is much less price sensitive than the average consumer. Thus sales of a Model S are less likely to be affected by a sudden drop in oil prices, even if gasoline is plunging faster than you can blink. Put another way, thinking about an internal combustion engine and comparing it to an electric vehicle is flawed -- people buying EV's aren't doing so to conserve on gas. You'd have to look at demand for the Toyota (TM) Prius and other hybrids. EV's are bought for zero dependence on oil -- not less, zero.
Even if there is no correlation, there's been a decline since the middle of November, and price talks and you-know-what walks. So that considered, there are a few reasons for the decline that are likely warranted, but not at such a sharp level. They include concerns about production levels, the random noise regarding monthly sales numbers that never seem to be accurate when Tesla reports ACTUAL results, and technical weakness in the stock.
On the third quarter earnings call, CEO Elon Musk said the company is poised to grow 50% in 2015, at least 50% in 2016 and for the foreseeable future. "We're growing our production by like 50% a year, year-over-year as far into the future as we can reasonably project," Musk said. "That's quite a big percentage growth for manufacturing a large, complex object. We would like to grow faster of course, but it's also worth bearing in mind we have got one factory."
Investors may be concerned that the company cut its 2014 delivery forecast in November, as it now expects deliveries to be around 33,000 units, down from its previous estimate of around 35,000. According to the company, this cut was due to "the complexity of launches related to dual motor and autopilot hardware." Previously, Tesla had blamed the lack of lithium-ion cells for battery packs as a reason for not being able to fulfill demand.
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Tesla also stated that the Model X would be pushed back to the third quarter of 2015 as it works to get Alpha and Beta prototypes and testing complete. Deutsche Bank analyst Rod Lache noted that was likely the case, writing "this was largely known as customers' order confirmation emails have been indicating a Fall 2015 launch."
The company did note that previous projections -- it expects to have an annual run rate of 100,000 cars by the end of the year -- for 2015 are unaffected. Musk also seemed to be quite confident that Tesla is capable of delivering 50,000 Model S vehicles a year, noting "It's probably more than that, but that's the number we're confident in." A 50,000 delivery forecast would be 50% growth, implying that Tesla's forecast hasn't budged and the market is overreacting here.
Even though some on Wall Street will just focus on the car deliveries, much of the value in Tesla's share price is in its potential to change the battery industry. See these comments from DoubleLine Capital's Jeffrey Gundlach, just a few short weeks ago:
"It's the batteries. It's all about the batteries," Gundlach said in an interview with CNBC's Sara Eisen. "I think they can ultimately change society if they pursue battery technology that really creates the ability to store enough energy that you could, say, run a house on, get yourself off the grid."
Consumers' behavior about storing energy hasn't changed in the past few months, so any decline, no matter how sharp or how quick, looks like a buying opportunity, if you look through a lens that looks past what the S&P 500 futures are doing on any given day. For those worried about a long-term decline in oil prices seen in the 1990's, it's not going to happen, thanks to decisions made by President Clinton and the CFTC in the mid 1990's.
Even though production issues are still at the forefront of investors' minds and expectations for 2015 volume have been reset, the company is continuing to open the floodgates for the Model S, moving further into China and unveiling the dual-motor version of the Model S, as well as of the Model X.
Tesla's long-term prospects are bright -- you just need to be able to separate the facts from the noise.
--Written by Chris Ciaccia in New York
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