A Recovery in the Wings for Tesla

Tesla’s stock has fallen over 15% this year. That indicates trouble at the world’s largest electric vehicle (EV) manufacturer. One reason is mundane. Tesla faces some of the parts shortage challenges that have plagued the industry. The other likely reason is the preoccupation of founder and CEO Elon Musk as he works to complete a buyout of Twitter. How much of a distraction has this been?

The parts shortage problem could exist for months. Tesla seems to have navigated it better than most other manufacturers. It still appears to be on a path to having sales well ahead of 2021. That likely will increase its lead over rivals, most of which have been in the EV market for much less time than Tesla.

Musk’s preoccupation with Twitter is similar to his work with SpaceX, the rocket company that takes up much of his time. The open question, therefore, is whether he will install new management at Twitter and, after giving them marching orders, turn his attention elsewhere. Even though Musk’s approach to operating companies can be mercurial, he will not substantially cut the time he spends on Tesla, his flagship company, and the source of most of his wealth.

The most critical issue when examining Tesla’s future is its unit sales. Proponents of a new rise in the company’s stock would add to that Tesla’s technological advantages. While these advantages are hard to quantify, Tesla’s sales success is not. In the most recent quarter, Tesla delivered 310,000 vehicles, up 68% from the same period a year ago. At its current pace, it could sell 1.5 million cars this year and 2.0 million in 2023. That gives it a massive lead over rivals.

Tesla’s other advantage is that it is unclear that large car companies like Ford can successfully launch EVs. Ford’s F-150 Lightning could be a remarkable success. However, it is up against parts shortages, the question of whether F-Series owners want EVs and the challenge of building quality software to run its EVs.

Musk will give Tesla as much of his time as necessary to cement his future. He is much too smart to do otherwise.

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