I'm a firm believer that the best way to make money in the markets is to buy great stocks and hold them indefinitely.
In 2017, I shared 10 reasons why I've invested in Tesla (TSLA -3.40%) for the long term. However, it would be an enormous understatement to say that the last year has been challenging for the company. Between the slower-than-planned Model 3 production ramp up, mounting financial losses, and an endless drumbeat of pessimism from the short-sellers, it's little wonder that in a recent interview with The New York Times, Elon Musk described it as "the most difficult and painful year of my career."
So is Tesla still a great company that is worth holding indefinitely? Let's check back in on those 10 reasons I gave for being long Tesla's stock to see whether they still apply today.
Image source: Tesla.
1. Low-cost marketing
"I don't care what the newspapers say about me as long as they spell my name right" — P.T. Barnum
There's no doubt that Tesla still has a knack for garnering an insane amount of free media attention. An avalanche of articles and videos and is published on the company every single day. Even though many of these media mentions are negative, I still think that all the free publicity only helps to get the word out about Tesla's mission and products.
As a quick data point, Elon Musk had 14 million Twitter followers in June 2017. That number recently surpassed 22 million. I'm sure the constant media attention is a major reason why his popularity continues to soar.
Musk also reaffirmed on Tesla's recent conference call with investors that word-of-mouth continues to create demand for the company's products, too:
[T]he thing that we're really proud of is that the more Model 3s we deliver to the field, it's actually causing parallel growth of our sales. So, we deliver a Model 3 to somebody, they love it, they tell all their friends. Really, our customers are our primary sales force.
While there's a solid counter-argument to be made that Musk is spending too much of his time with the media defending his company, I still view all of the publicity as a huge net win for the business. And I continue to believe that this remains one of Tesla's biggest long-term advantages over its rivals.
2. Ridiculously loyal consumers
Tesla's owner satisfaction numbers continue to lead the industry. The company recently pulled in the top ranking in Consumer Reports' owner satisfaction survey for the third year in a row.
What's more, the company's Net Promoter Score remains an amazing 96. That's a best-in-class number among auto brands.
3. Complete control over the customer experience
Tesla is still the only major automaker that controls every aspect of the customer's ownership experience. This allows it to provide a level of convenience and service that no other car maker can match, and to innovate around the car-buying process and the ownership experience.
For example, it recently starting testing direct delivery of its new cars from the factory straight to the buyer's home or workplace. Musk believes that this method is "definitely the future."
Tesla Mobile Service is another great example of the company's ability to provide a differentiated experience. The company claims that 80% of repairs can be accomplished by its mobile fleet, which is another huge convenience for owners.
And how about the over-the-air software updates that allow the cars to improve long after they leave the factory? Tesla recently used this feature to address an issue with the Model 3 braking system that Consumer Reports had identified. A fix was created quickly and pushed out to vehicles within days. Commenting on this reaction, Consumer Reports director of auto testing Jake Fisher stated: "I've been at [Consumer Reports] for 19 years and tested more than 1,000 cars and I've never seen a car that could improve its track performance with an over-the-air update."
I think that Tesla's decision to maintain complete control of the customer experience allows it to build brand loyalty in a way that other automakers simply cannot match.
4. A beloved brand
The name "Tesla" moved up two spots on Interbrand's list of top 100 global brands in 2017, coming in at number 98 overall. While the value of the brand didn't change, the name alone is still worth $4 billion.
What's more, Tesla was also recently named the most innovative brand in the U.S. on a list compiled by BrandZ. That honor in particular likely matters a great deal to Musk, since he recently said on a call with investors that the "the pace of innovation... is the fundamental determinant of competitiveness."
5. Access to SpaceX engineers
Musk continues to head up both SpaceX and Tesla. While it is hard for outsiders to judge how much this benefits Tesla, reports have surfaced of the two companies working together to develop new materials and solve problems.
I still believe this relationship will directly benefit Tesla in the long run.
6. An energized and talented workforce
Tesla's ratings on Glassdoor have been trending slightly lower over the last year. That makes sense given the enormous challenges associated with ramping up Model 3 production, as well as the layoff of about 9% of the company's workforce.
As an outsider, it is hard to gauge whether these events have dampened morale or deterred potential new hires from applying. Thankfully, Tesla continues to score very well among its employees in the "job meaningfulness" category, which I still think gives it an edge in attracting and retaining top talent.
This is, however, certainly an area for investors to watch, especially since there have been a few high-profile executive departures.
7. The supercharger network
Tesla now boasts more than 11,000 Superchargers in its global network. That's twice as many as a year ago. There are also tens of thousands of Destination Charging locations at hotels, restaurants, malls and the like, and more are coming onto the network every month.
While the company's unmatched charging network should continue to give it an edge with consumers, there's no doubt that competition on this front is starting to heat up. Other car manufacturers are deploying advanced charging technologies of their own, and in some cases are even partnering with each other share the costs of building out their networks.
While Tesla is still the leader here, and will likely benefit from its first-mover position for a while, there are legitimate reasons to believe this advantage won't last.
8. The Gigafactory
The massive Gigafactory in Nevada has been churning out batteries for more than two years. While the plant is still under construction, it is already producing batteries at an annual run rate of about 20 gigawatt-hours, which makes it the highest-volume battery plant in the world. In fact, Tesla already produces more batteries in terms of kWh than all other carmakers combined.
Tesla's notoriously tight-lipped about what that huge scale means for its costs, but Musk recently revealed at its annual shareholder meeting that their costs at the cell level are expected to fall under $100 per kilowatt-hour later this year. He also believes that within two years, the company will break below the magical $100 per kilowatt-hour mark at the battery pack level, too.
While Musk's timelines should always be taken with a grain of salt, I think that Tesla's scale advantage on batteries should continue to provide it with big cost savings. How long that advantage lasts is anyone's guess though, given that at least 20 new battery megafactories are currently being built.
9. Optionality and market opportunities galore
Tesla's near- and long-term product roadmap continues to be one of a kind.
In the near term, its growth will continue to be driven by expanded production of the offerings already in its lineup: The Model S, Model X, Model 3, Powerwall, Powerpack, and the solar roof.
Within just a few years time, a semi-truck, the next-generation Roadster, a pickup truck, a compact SUV called the Model Y, and a "next generation bus" will join that list.
Musk is certainly excited about the company's potential:
If there's a company with a better product roadmap, I'd like to know where it is, because we've got some super-awesome stuff coming.
Longer term, the company plans to launch its own autonomous taxi network, and deploy autonomous truck platoons that could disrupt the taxi, ride-sharing, and trucking industries.
What is all of this optionality worth? It's impossible to say at this point, but ARK Invest recently published a detailed report asserting that Tesla shares -- currently trading in the vicinity of $290 -- could be worth up to $4,000 by 2023 because of all of its embedded optionality.
10. Talented leaders who are all in
While Musk is a polarizing figure, I believe that even the Tesla short-sellers would admit that he is extremely motivated to see the company succeed. Beyond the huge potential financial rewards -- he currently owns 22% of Tesla's shares outstanding and has signed a lucrative long-term pay package that is entirely linked to company performance -- Musk's reputation is directly tied to Tesla's success. I think that's a huge motivator for him.
The same can be said of many of Tesla's other longtime executives, too. CTO J.B. Staubel and CFO Deepak Ahuja both hold millions of dollars worth of company stock, and could have retired rich long ago, but they've instead chosen to remain at Tesla.
I love to put my money behind passionate leaders with serious skin in the game, so I continue to believe that Tesla is in great hands.
Reasons for caution
Despite my clear bullishness, I'm not blind to the fact that there are strong counter-arguments to be made about the company.
For one, I do not agree with its decision to forgo raising additional capital. Why drain the cash balance to such a low level when management could easily pad its cushion with just a little bit of dilution?
I also didn't like the go-private head fake, nor the way it was announced on Twitter. I believe Musk when he says that he chose that medium in an effort to be transparent, but he ended up opening a can of worms with the SEC.
Finally, I'm not sure if Musk's decisions to spend time with Marques Brownlee or Joe Rogan, or on the Thai cave rescue operation, are really the best choices, given all the balls he has in the air. I'd prefer him to remain focused on the Model 3 production ramp up, and getting Tesla to profitability. Then again, all of that media exposure did grab him some headlines, which may help the company to sell more cars.
Tesla is a buy
Overall, I recognize that Telsa stock is not for the faint of heart, and that there are legitimate reasons for shareholders to be cautious. Despite that, I continue to believe that the company still holds many durable competitive advantages, and it has sky-high growth potential. That's why Tesla remains a stock that I plan on never parting ways with.
