Yet while Tesla may again be flavour of the month, you don’t have to look back far to find a very different view of the company. In June 2019 its shares had slumped to a three-year low of just under $179 a share, helped downwards by some erratic behaviour from Mr Musk that included televised pot-smoking, a threat to take the company private and censure by the Securities and Exchange Commission.
Beneath the sensational headlines, you would have also found a company whose earnings forecasts had been repeatedly downgraded, a trajectory that continued well into 2019 – five years previously Tesla had been expected to make over $15 a share this year; come the nadir in June, and the expectation for 2019 earnings had instead swung to a loss of nearly $4 a share. The closer we got to reality, the more disappointing and fantastical the Tesla story had started to seem – some analysts suggested that, as rivals caught up in the electric vehicle race, it might never turn a profit. Scottish Mortgage’s managers could often be heard defending their continued position.
What had changed in a little over three months, then, when in September Tesla’s shares started motoring again? At the bottom line, 2019 losses are now expected to be more marginal than previously expected at less than a dollar a share. But at the top line the company has regained traction, with 360,000+ cars delivered internationally, 50 per cent more than in 2018, and new vehicles such as the Tesla Y and Cybertruck sparking huge excitement and creating expectations of further growth to come. And, as one former Tesla executive recently observed, Mr Musk is behaving himself a little better.
Let’s come back to reality, though, which is that the huge share jump this year has been prompted by what, after years of missed targets, is a relatively minor earnings upgrade – $15 of annual earnings are now forecast to arrive in 2022, three years late. And it is still far from clear how much Tesla will benefit from its first-mover advantage, how quickly drivers will switch to electric vehicles (EVs), and when and how the infrastructure to support a mass EV market will be built. Nevertheless, Tesla’s critics and many shorters will have learned a valuable lesson: that dismissing such visionary companies as write-offs can sometimes be more dangerous than buying into their big promises.
