Hamilton Capital Partners | Atlanta, GA — Hamilton Capital Partners

Tesla Stock is Hot

By Kelvin Lee, Alonso Munoz

Out of all the names in the S&P500, Tesla stands out as the most controversial. The stock has passionate defenders and equally feverish haters. CEO Elon Musk’s bid over Twitter last year only furthered the divide and fueled critical press. Elon’s public showdown with Twitter led political, financial, and retail media outlets to converge harshly against him and his companies. People love to hate on Tesla, and after a significant repricing in the stock, we see opportunity.

Elon Musk’s eccentric personality and its corresponding volatile effect on Tesla’s stock is a point made by many of the stock’s detractors. Musk himself is often considered a headwind for the company. Take his recent bid over Twitter as an example. Not only did he use billions of Tesla stock as margin, but also diverted time and company resources to run his new social media company. Even prior to his acquisition, his twitter feed was a source of immense controversy and hype. He’s a man that loves to tweet, so much so that he occasionally gets in trouble with regulators (and Washington “elites”). We understand that those aren’t necessarily the qualities that investors want in a CEO; however, Musk’s actions are amplified by social media and the army of reporters, retail investors, and political demagogues. When Tesla shares drop from a Musk related event, the fundamentals of the company don’t necessarily change. In some ways, these dislocations in the fundamentals vs mob consensus create an arbitrage opportunity to get equity at a discount. With Tesla trading down 70% off its high, investors are starting to see value. We aren’t alone on this ideology; Barron’s published an article on January 8th titled: “Tesla has Issues. Buy the Stock Anyway”, making a case for brave investors willing to ride the Musk rollercoaster.

It can be argued that Elon Musk’s whims keep his businesses on the forefront of innovation and relevance. SpaceX, Tesla, and Starlink are all a result of Musk’s unconventional expansions, and each are leaders in revolutionary tech. Had the market rallied after the twitter purchase, critics would be praising Musk, not affronting him.

There are valid fundamental concerns regarding the electric vehicle titan. Tesla, like every other vehicle manufacture, is seeing declining demand and rising costs. Tesla has cut prices as a response, but waning delivery growth and continued plans to increase production doesn’t bode well with investors concerned with margins, especially alongside a looming recession. Other vehicle manufactures are also entering the EV space, threating Tesla’s dominant market share, and compared with these peers, Tesla still trades at high valuation multiples. The Big Short investor Michael Burry has been preaching Tesla weakness for a while now. Burry’s Scion Asset management shorted Tesla in 2020 and exited those positions back in November 2021 when Tesla hit its all-time high (ouch), likely at a major loss.

So, given all the headwinds, why are we bullish on Tesla? We are keeping a broad perspective on the company’s ability to execute, and it’s potential to dominate the EV space compared to peers. Tesla continues to deliver electric vehicle sales whilst making a profit with best-in-class margins (see below figure). In terms of a competitive advantage, Tesla has the most innovative and diversified product line among car companies. Batteries, charging stations, and (most importantly) automated driving software. This suite of auxiliary products and services complement Tesla’s vehicle revenue and are exceptional indicators for forward growth in a more tech reliant world. Although we expect short term drawdowns in its financials this cycle, we still view Tesla as the market leader in EV’s and best positioned for upward growth.


To contact the author of this story:
Kelvin Lee at kelvin@hamiltoncapllc.com

To contact the editor responsible for this story:
Alonso Munoz at alonso@hamiltoncapllc.com

This commentary reflects the personal opinions, viewpoints and analyses of the Hamilton Capital Partners, LLC, a registered investment advisor, employees providing such comments, and should not be regarded as a description of advisory services provided by Hamilton Capital Partners, LLC or performance returns of any Hamilton Capital Partners, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Hamilton Capital Partners, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Hamilton Capital Partners, LLC provides links for your convenience to websites produced by other providers of industry related material. Accessing websites through links directs you away from our website. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites