Is It Time To Give Tesla Another Chance?

Back in the middle of January, I wrote a piece here explaining why after years of maintaining a base position in TSLA off of which I had traded, often quite profitably, I was selling my entire holding and getting out. In that article, I laid out the two main reasons for that decision. First, the business climate had not turned out as many expected, with subsidized overseas competition in the EV space developing quickly, forcing Tesla to cut their previously enviable margins. Then there was the “Musk factor”. Elon had been talking about quitting if he wasn’t given more power and, with earnings coming up, some drastic action looked distinctly possible.

One could argue that his presence at the company has become more of a liability than an asset given the distractions of Twitter and other interests and his recent tendency to take a partisan political stance that will alienate many of the company’s natural customers. But, I reasoned, the prospect of a Muskless Tesla would still prompt a big selloff in the stock. Should the company’s iconic founder and leader leave, or even increase the intensity of his threats to do so on the analysts’ call that would follow the earnings release, I didn’t want to get stuck holding a stock that might gap dramatically downwards.

The second part of that reasoning was, let’s face it, completely wrong. The threats to leave turned out to be either childlike sulking or maybe some kind of marijuana-induced fantasizing on social media, something with which followers of Musk will be all too familiar. Or, more charitably, maybe it was a calculated strategy to win some hidden political battle with the board. Whatever the original reason for it, though, Musk’s threats to leave, once big news in financial media, have been quickly forgotten.

Despite that, the decision to sell out was a good one, as you can see from the chart since that day…

Elon Musk did not announce that he was leaving, but he did reveal disappointing numbers for Q4, as well as downbeat guidance for the start of this year based on yet more of the price cuts that had already squeezed profits. TSLA has therefore dropped more than 25% from its opening price on the day I wrote that article. In addition, the S&P 500 ETF (SPY), where I parked the proceeds from the TSLA sale, has risen 8% over the same time period. I may have got the bold call wrong, but it all worked out well, nonetheless.

I said at the time that that would be the end of my dabbling in TSLA. It had been good to me over the years, and it was time to move on. The stock had become like a crazy girlfriend that I felt I had to break up with. We had some good times, but the constant ups and downs were getting to be too much. However, as is often the case, once out of the troubled relationship, I found myself missing the chaos in some ways. So, we are getting back together.

Not right away, maybe, and certainly not in as committed a way as it once was, but I am looking to pick up some TSLA over the next few days.

Part of the reason is shown on the 1-year chart above. TSLA is approaching the 52-week low of 152.37 that it hit last May. That low also followed quite a dramatic drop in the stock, but the bounce from there was spectacular, with TSLA roughly doubling in just two and a half months. That will be obvious to everyone who looks at the chart, and given that TSLA still has some dedicated, some might say fanatical, supporters there will probably be no shortage of buyers looking to get in at or close to the obvious support level.

Longer-term, it is an election year in the US, and strangely enough, it looks as if whoever wins, Tesla could benefit. Musk’s clear Republican leanings have led him to reportedly have multiple conversations with Donald Trump over the last few months on various subjects. As unpredictable as Trump can be in many ways, the most predictable thing about him is that he likes and listens to those who show him the respect that he believes he deserves. So, even though Republicans are typically pro-fossil fuel rather than alternative energy sources, Musk will probably have Trump’s ear enough to ensure that energy and transportation policy in a Trump administration work in his favor.

Should Joe Biden win, as much as he may want to punish Musk for his partisanship, the need to pursue eco-friendly policies so as to appease his base will be a much bigger influence on policy decisions than any personal animus. Pro-EV policies, or more specifically pro-American EV policies, would therefore come as no surprise. It may gall some Democrats somewhat, but policies that favor the US EV industry will inevitably benefit Tesla more than anyone else given their dominance of the market.

So, we have a stock that is approaching what could turn out to be not just a major support, but also a major pivot point, and a company for which the thing that will weigh on others over the next few months, the election, holds no fear. Add in that even with all the increased competition and after price cuts, Tesla is still a massive leader in the industry and operates profitably, and I just can’t resist having one last fling with TSLA.