By now, you’ve heard about Elon Musk’s plan to take Tesla (TSLA) private, a plan first revealed in a tweet and then amplified in a letter to Tesla employees.
And by now, you’ve read the pessimistic opinions of “experts” who claim that it’s an unrealistic plan, that the company doesn’t have the cash flow to justify it, that investors would balk, and that the debt would be crippling.
But here’s the problem with their thinking—to be blunt.
Those people are shortsighted bean counters, whereas Elon Musk is a visionary genius.
“Tesla’s mission is to accelerate the world’s transition to sustainable energy.”
Those people think in terms of quarterly sales and earnings (or cash burn) while Musk thinks in terms of decades.
And those people, in many cases, may be the short sellers who since the beginning have been an irritant to Musk as he works to fulfill Tesla’s mission statement.
In other words, they have a bias, and their bias makes it hard to truly embrace Musk’s vision, his world.
“The thing about smart people is that they seem like crazy people to dumb people.” -Stephen Hawking
Well, I have a bias, too, but my bias makes it easier to see Musk’s vision.
Tesla: A “Crazy Idea” That Worked
You see, I’ve spent many decades here at Cabot tracking the fortunes of small, fast-growing companies steered by visionary leaders, and I’ve seen the great long-term success these leaders can create.
I’ve seen Reed Hastings of Netflix (NFLX) start with the “crazy” idea of sending CDs through the mail and eventually build a juggernaut that is now a major force in entertainment.
I’ve seen Jeff Bezos of Amazon (AMZN) start with the “crazy” idea of selling books online (critics said Borders would eat their lunch) and become the richest man in the world.
And I’ve seen Steve Jobs of Apple (AAPL) take his quirky little computer company and become a disruptive force in first music and then smartphones—and now with Steve gone, I’ve seen that company become valued at a trillion dollars!
(Note: Steve Jobs, Bill Gates and I were all born the same year.)
So, yeah, I believe in Musk far more than I believe in any of those bean counters. They’ve never learned how to think really long term.
And I also believe in Musk because I first recommended TSLA to the readers of my Cabot Stock of the Week (then called Stock of the Month) advisory back at the end of 2011, when it was trading at 29. I have never recommended selling in the nearly seven years since. So those readers that have followed my advice now have profits of roughly 1,200%, and that definitely affects my perception of the stock, the company and Musk.
Additionally, at least two of the attendees at our annual Cabot Wealth Summit next week have also bought Teslas, using profits earned from their early investments in TSLA stock.
Last but not least, I’ve been the proud owner of a Tesla Model S since September 2013, and I love it more than I’ve ever loved a nearly-five-year-old car.
So when Musk talks about taking the company private, I understand immediately. As the leader of a private company, he’d be free of the stupid questions posed by analysts at quarterly meetings, he’d be free of the pressure to meet quarterly yardsticks, and he’d be free of the efforts by short sellers to make a buck by dragging the stock down.
These folks are trying to make money—and that’s fine—but Musk is trying to change the world.
Why You Should Trust Elon Musk
Happily, he’s already changed a lot, but not all of what he’s done is visible to the bean counters.
He’s proven that you don’t need independent auto dealers to sell cars; all new Teslas are sold by Tesla, directly to the buyers.
He’s proven that you don’t need to advertise to sell cars. Providing a revolutionary product is enough.
He’s proven that electric cars can be not only ecologically smart but can also deliver better performance than gasoline-powered cars.
He’s built a global network of more than 1,300 Supercharger Stations with more than 10,700 Superchargers, enabling convenient long-distance travel.
He’s built the largest battery factory in the world.
He’s built the largest back-up battery in the world and installed it in Australia, where it is outperforming projections.
And now, with the long-awaited Model 3, he’s sold more cars in a month than any of his competitors in the small and midsize luxury car market.
Now, I will admit that TSLA stock may be overvalued at current prices. But that’s typical of great growth companies. Overvaluation is a terrible reason to avoid investing in a growth company.
And I will admit that the profit potential of TSLA is not what it was back before everybody knew the company’s name (and Elon’s name).
But I still believe there’s a lot of progress to be made as we transition from the fossil-fueled human-driver era to the electric-powered autonomous driving era, and there’s no one I trust to lead the way there more than Elon Musk, especially if he no longer has to contend with the short-term thinking of analysts and short sellers.
Do you want to trust General Motors (GM), which killed its first electric car because it couldn’t sell enough?
Do you want to trust Volkswagen (VLKAY) and the other German companies that were so hooked on diesel that they cheated?
No, I think the best person to trust is Musk, even if you don’t know what crazy tweet he’s going to put out tomorrow.
Back in 1972, a successful investor by the name of Thomas Phelps wrote a book titled 100-to-1 in the Stock Market, in which he documented the great successes ordinary investors could achieve simply by buying growth companies and holding long term—really long term. He wrote, “Perhaps the greatest advantage of all in buying top quality stocks without visible ceilings on their growth is that when we do so we give ourselves the chance to profit by the unforeseeable and the incalculable.”
That phrase, “the Unforeseeable and the Incalculable,” has guided a lot of the thinking at Cabot since my father met with Mr. Phelps the year after the book was published, and today it’s as relevant as ever.
So, #1, I’m sticking with Elon Musk, especially if he takes his company private.
And #2, as always, I’m looking for the next Tesla, the next little unknown company with great long-term profit potential.