Tesla investor breaks down TSLA bull case: solid fundamentals and cars are amazing

Chamath Palihapitiya, a Facebook millionaire turned venture capitalist and longtime Tesla investor, broke down the TSLA bull case on CNBC as the stock takes a hit following a difficult quarter.

We previously reported on Palihapitiya when he pitched Tesla’s stock and bonds as an investment in 2017 and again when he predicted that Tesla Model 3 will wipe out BMW 3 Series sales.

Tesla’s stock hasn’t performed well since and while 3 Series sales have declined in the US, they haven’t been completely wiped out.

TSLA share price has fallen 16% over the last month since the company announced much lower deliveries during the first quarter of 2019.

But Palihapitiya is still bullish on the stock and he went on TV to break down his view of TSLA as a long-term investment.

It is fair to say that a big part of his investment thesis is based on his confidence in Elon Musk:

“If you take a step back right, if I asked you to s attempt to drive a golf ball off the pier here into a tea cup and gave you a million tries, I suspect that in a million times you would not be able to do it. But if you then took somebody else and they were able to do it nine times out of ten, you’d say ‘wow that person is a great golfer’. The analogy that I would make is Elon basically did that equivalent. He was able to send a rocket into space, do all kinds of interesting enormously productive useful things for the world while in space and then come back down and land on a boat in the middle of the ocean. The kind of technical sophistication that he has in his mind that he’s been able to apply across his companies is second-to-none quite honestly.”

When it comes to Tesla, the investor continued:

“So when we looked at Tesla, what we thought was a company at an inflection point that was as close to its version of an iPhone moment, and what I mean by that is a company that had been growing up, taking risks and had finally found the mass-market product that would unlock an enormous amount of product market fit. And that was the model 3. And so far what I would say is he’s living up to what he has signed up for, which is to commercialize electrification, to commercialize an incredible user experience at a price point that is frankly cannibalizing its competitors. And what you see in the results, in my opinion, is a company that is now maturing under all of that demand.”

Palihapitiya has an interesting approach when it comes to investing in Tesla.

He argues that the stock is being manipulated by some investors and hedge funds and he prefers to stay away from it and invests in Tesla’s bonds.

The investor said:

“Is it the best-suited company if you want to drive and observe quarter-over-quarter precision and performance? No. But if you want to take a step back and take a three, five-year view and say where can I compound my money… and particularly with the converts, what’s so beautiful is its downside protected because it sits on top of all the equity and the other debt. And so if you had any concern that there are liquidity issues or if you have any concerns that the company may have to sell they get paid first. So to me it was a risk-less option on the Edison of our generation.”

When it comes to Musk’s behaviors, Palihapitiya says not to be hung up in a few mistakes and instead look at the products:

“It doesn’t change that the minute you sit inside that car your definition of what is expected is altered forever and you wonder why every other car around you that you ever step in that you may buy doesn’t have the same things that that car offers. So at the end of the day whether you like his style or not, his substance is irrefutable.”

Here’s the full interview:

Electrek’s Take

I think Palihapitiya is extremely smart and I mostly agree with what he said. He lays out the bull case really well.

While I think Tesla and Elon made several mistakes, especially in the past few months, I don’t think those have a major impact on the long-term prospects of the company.

Their electric cars are already the best out there right now and I think they have a great strategy for the other big upcoming disruptor in the automotive market: autonomy.

However, I disagree with him when it comes to the volatility of the stock. While short sellers definitely have a hand in the volatility, I also think Tesla made many mistakes that contributed a lot to the recent important decline in value.

Full disclosure: both Seth and I have been buying TSLA in the most recent decline over the last few months as we think Tesla is still an important part of the electrification story going forward. So much for being anti-Tesla :P. Our disclosure is available on our about page.