Tesla (TSLA -3.54%) has been a battleground stock for nearly its entire history as a public company. The electric vehicle pioneer has had plenty of ups and downs over the past decade, but bulls have been vindicated over time. Tesla stock has surged from a split-adjusted IPO price of $3.40 in 2010 to over $700 today.

Nevertheless, a surprisingly large group of bears continue to believe that Tesla is a house of cards doomed to collapse. Yet these investors associated with the "$TSLAQ" cashtag miss a single, rather obvious point: Tesla's business fundamentals have improved dramatically over the past two years.

Some ultra-bearish arguments made sense a few years ago

Skeptics have criticized Tesla on a number of fronts over the years. Many bears have argued that the company would always struggle to make money in the ultra-competitive auto industry, especially because of Tesla's comparative lack of scale. Others have doubted its growth potential, arguing that outside of a small base of dedicated fans, electric vehicles held very little appeal for consumers. And some bears have highlighted safety and quality lapses or accounting irregularities as existential threats to the company.

Not too long ago, many of these arguments seemed plausible. While Tesla grew its vehicle deliveries by about 50% year over year in 2019, the ramp-up of Model 3 production drove all of this growth. Deliveries of the more established Model S and Model X plunged 33% compared to 2018, which was potentially consistent with a fairly shallow demand pool.

An overhead view of a red Tesla Model 3.

Image source: Tesla.

Furthermore, total revenue grew just 15% in 2019 as the mix shift toward cheaper Model 3s caused average selling prices to fall. And while automotive gross margin exceeded 20%, Tesla reported a loss attributable to common stockholders of $862 million. Worse still, gross margin dollars increased by less than 1% year over year.

Finally, although Tesla reported $1.1 billion of free cash flow in 2019, it handed out $898 million of stock-based compensation and received $594 million of regulatory credit revenue that year. Moreover, it had to slash annual capital spending to $1.3 billion from $2.1 billion a year earlier to produce that free cash flow. These results provided some support for bears' arguments that the company would struggle to generate sustainable profits.

Of course, none of this evidence proved that Tesla was a house of cards. But bears who believed that Tesla stock would ultimately go to zero could present logical arguments to support that view.

The verdict is in

Today, arguments that Tesla stock will go to zero -- or even that it will fall more than 90%, as the most bearish Wall Street analyst believes -- appear detached from reality.

Last quarter, Tesla delivered over 200,000 vehicles for the first time ever. Moreover, it hit this milestone despite severe supply constraints. That enabled it to generate record revenue of $12 billion and post a GAAP profit of more than $1.1 billion. Regulatory credit revenue of $354 million drove less than a third of its earnings. And in the 12-month period that ended on June 30, Tesla generated $4.2 billion of free cash flow.

A blue Tesla Model Y.

Image source: Tesla.

In short, Tesla's recent financial results aren't remotely consistent with arguments that the company is essentially worthless. Tesla is already generating meaningful free cash flow while continuing to grow rapidly. Furthermore, its industry-leading owner satisfaction rate implies that customers don't share bears' concerns about quality and safety issues.

This doesn't necessarily make Tesla stock a good buy today. With a fully diluted market cap of more than $800 billion, Tesla will need to become one of the largest and most profitable companies in history to live up to its valuation. Tesla clearly has high potential, but it remains to be seen whether it can become a dominant force in the auto industry and beyond, as bulls expect.