Tesla: The Ultimate Battleground Stock

Zacks Rank #2 (Buy) stock Tesla (TSLA) became the first successful U.S. automotive startup in over a century and the first to achieve widescale adoption in the electric vehicle (EV) industry. Though Elon Musk and Tesla deserve credit for popularizing the EV, they did not invent it. The movie “Who Killed the Electric Car?” profiles the limited commercialization and downfall of early EVs. Nevertheless, the Tesla teams’ vision to unveil a cool and high-performance EV at scale has propelled Tesla CEO Elon Musk to become the wealthiest man on Earth. However, with some of his antics, like his “Funding Secured” tweet, smoking marijuana on the world’s most popular podcast (The Joe Rogan Experience), and his unique and overall eccentric behavior, Musk has garnered his fair share of haters and doubters over the years, including the likes of Microsoft (MSFT) founder Bill Gates, CNBC’s Jim Cramer, and renowned short seller Jim Chanos.

The fact and the matter is that Tesla is and will always be one of the biggest battleground stocks on Wall Street. Investors either hate or love Musk and, as a result, have strong feelings about the stock.  Having said that, savvy investors understand the significance of ignoring emotions and looking at the facts. Today, I will divulge five common bearish myths about Tesla and use data and numbers (not emotion) to examine why they are wrong.

“Tesla’s Relative Stock Performance is Poor”

A common bearish argument that I hear is that TSLA is not worth owning because it has underperformed competitors such as General Motors (GM) and fellow “Magnificent 7” stocks like Microsoft and Meta Platforms (META). These investors go wrong because they fail to account for time frame context, which is critical when sizing up relative price performance. Bears will argue that TSLA is weak because it has failed to print a fresh high since late 2021. However, over the past decade, TSLA has trounced GM to the tune of 1500% to 115%.

Image Source: Zacks Investment Research

Another factor to consider is price digestion. After TSLA soared from a split-adjusted $1.79 to $17.67 in 2012-2014, the stock consolidated those gains for 5 years before again surging in 2019 and 2020 from $14 to $400. In other words, price consolidations are common after monumental price moves.

“Tesla Depends on Government Handouts”

Like other clean energy stocks, Tesla has been a beneficiary of government subsidies. That said, the idea that Tesla is entirely dependent on these subsidies and would go bankrupt without them is a farce that the company proved in the recent quarterly earnings report. Though regulatory credit revenue sunk 17% quarter-over-quarter, Tesla still beat earnings expectations by a wide margin due to decreased cost of goods sold (COGS). Even with fewer subsidies, Tesla’s COGS per vehicle dropped to its lowest level ever ($35.1k). Tesla smashed Zacks Consensus Estimates in the recent quarter by 24.14%.