The stock market has been declining sharply for the past two months. Markets headed into October on a high note, but they have been ugly ever since, as investors have expressed worries about slowing growth, rising interest rates, and escalating trade tensions. However, Tesla (NASDAQ:TSLA) stock has demonstrated surprising and impressive resiliency during this selloff.
Bucking the broader market trend, Tesla stock is up 10% since the start of October. It is also at all-time highs, excluding the levels it reached immediately following the now-infamous takeover tweet from its CEO, Elon Musk.
The performance of Tesla stock is especially surprising, since it isn’t a traditional defensive play. If anything,given its high valuation and tons of debt. it’s the opposite.
All of the FANG stocks have recently been in or near bear-market territory i.e. more than 20% off their recent highs. Why hasn’t Tesla stock emulated the performance of those other big-time tech names?
Because while the growth outlooks of FANG and other tech darlings like Apple (NASDAQ:AAPL) and Nvidia (NASDAQ:NVDA) are weakening, Tesla’s growth outlook is actually improving. The company’s production is finally reaching mass-market rates, and investors no longer continuously worry about its ability to become profitable, while its debt levels appear to be manageable. Moreover, its market share is rapidly expanding.
As a result, the whole narrative supporting Tesla stock is getting better, not worse. Thus, regardless of macro economic headwinds, there is a good chance that Tesla stock will rise from its current levels.
The Near-to-Medium-Term Outlook of TSLA Stock Is Improving
The recent market selloff has been led by a sharp drop in the hyper-growth glamour stocks like FANG, Apple, and Nvidia. The huge valuations of those stocks are now being called into question as investors worry that a recession is looming. Also, the stocks of companies with a ton of debt and exposure to big-ticket purchases (like autos and homes) are being dragged down as interest rates go up.
Tesla has all of those characteristics. Tesla stock trades at 56 times analysts’ consensus 2019 earnings estimate. It has well over $10 billion of debt. And TSLA sells an expensive product: cars.
Yet, Tesla stock hasn’t dropped even though TSLA has the three attributes that investors despise most right now. That’s because Tesla’s fundamentals are improving, while the fundamentals of most other companies are deteriorating. Thus, TSLA stock is becoming more attractive relative to other equities. This is a bullish dynamic that should persist for the foreseeable future.
In the digital ad world, giants like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG) are being threatened with slowing growth, rising expenses, and regulation worries. In the e-commerce space, giants like Amazon (NASDAQ:AMZN) and Wayfair (NYSE:W) are being threatened by slowing growth and declining profitability. Meanwhile, chip stocks like Nvidia and Advanced Micro Devices (NASDAQ:AMD) are dropping due to inventory issues.
But TSLA is not facing such threats. In fact, the recent news about Tesla has actually been very positive. The production and deliveries of its Model 3 vehicle have reached mass-market rates. The company was profitable in Q3 and should near consistent profitability soon. TSLA appears to be gaining market share at a rapid rate, and the market is no longer convinced that it will need to raise additional capital in the near-term. Its international expansion is proceeding as planned, and things appear to be fairly quiet on the management front.
The Long-Term Outlook of Tesla Stock Remains Promising
Tesla stock should be supported by the global electric vehicle (EV) revolution, falling EV production costs, improving profitability, increased Model 3 production rates, Tesla’s market share gains, upcoming vehicle launches by Tesla, and robust demand for Tesla’s vehicles.
The global EV revolution is just starting to go mainstream. The growth of the global market share of EVs is accelerating, but remains below 2% in almost every country.
EV battery costs have dropped 80% over the past six years and will likely keep dropping. Tesla just reported a huge profit in Q3 and should be consistently profitable going forward. The Model 3 was the fourth-best selling car in the U.S. in September. Tesla is clearly gaining market share. Also, TSLA is preparing to manufacture its Model Y vehicle in Shanghai, China.
The Bottom Line on Tesla Stock
TSLA stock has been shockingly and impressively resilient despite the recent market turbulence. This resilience should continue, given the stock’s favorable fundamentals and the deteriorating outlook of the overall market.
As of this writing, Luke Lango was long TSLA, AAPL, NVDA, FB, GOOG, and AMZN.