Ramstad: No matter how bro-y and showy Tesla acts, it's just another car company

The latest results from Tesla, due to be announced after market close Wednesday, will catch the attention of several groups of Minnesotans.

There's the engineering team that Tesla employs in Brooklyn Park to design its highly automated factories. There are the people debating the proposed nickel mine in Aitkin County, the output of which Tesla is committed to buy.

And there are the stock analysts in Minneapolis — Alexander Potter at Piper Sandler and Gene Munster at Deepwater Asset Management, formerly Loup Funds — who were early bulls on Tesla and, over the past year, have been asked again and again to explain why investors lost their enthusiasm for the pioneering maker of electric vehicles.

Tesla stock peaked at $414 a share (post-split value) in October 2021, having risen from $143 a year earlier and $21 in October 2019. Eager investors were comparing this era of Tesla to the early days of Apple.

Tesla stock dropped as low as $101 early this month before popping back up to around $145 in recent days.

Tesla CEO Elon Musk created one of the biggest dramas in American business this past year by purchasing Twitter for far more than it was worth, then slashing its workforce to help cut his losses.

Some people debate whether Musk's Twitter purchase and his other undisciplined behavior hurts Tesla's stock. But the real reason behind its stock decline is simple:

Tesla's growth didn't meet expectations — neither its own nor investors' — and EVs aren't yet the rage they're portrayed to be.

When a company is in fast-growth stage, missing a near-term goal means that expectations and goals for several years down the line must also be reset. Investors in 2022 essentially discounted Tesla's prospects for the next five years, Munster told me recently.

"Any little tweaks to growth in the near-term has a significant impact to what they expect in the long-term," he said. "That's why the stock got hammered. It's just hard for those long-term investors to be optimistic when the growth rates are dropping faster than what they had hoped."

Tesla had a 50% unit growth target for 2022 but came in around 40%, delivering 1.3 million vehicles. That lifted Tesla into the top 20 of global carmakers. It would need to double sales to reach the top 10.

When Musk and other Tesla executives speak Wednesday, investors will listen most keenly to their growth forecast for 2023. Many expect another 40% jump this year.

Potter, in a report last week, said he thinks Tesla can achieve a 50% gain in deliveries this year, in part because the company recently cut prices and will benefit from a federal tax credit to EV buyers.

But neither he nor Munster believe the company's stock will soon get back to the all-time high level of late 2021. Potter's 12-month price target on Tesla shares is now $300.

Even that price implies an earnings multiple that is far above what investors give on other car manufacturers. Which brings us to the question that's heard in the national business media all the time: Is Tesla a car company or a tech company?

"This is not an auto company. This is a transformative, disruptive tech company," said Dan Ives, the Wedbush analyst who has been critical of Musk lately but is generally bullish on Tesla, earlier this month on the TD Ameritrade Network.

When I asked Munster whether the debate really mattered, he said, "It doesn't really matter for the company. It definitely matters for the stock in that it's the central question."

In the summer of 2018, the Washington Post's Geoffrey Fowler reviewed the Tesla Model 3 as he would a smartphone. He described the car as "like an iPhone circa 2008, before we had figured out how to live with them."

Five years on from 2008, Americans had figured out how to live with the iPhone and other smartphones. They'd become ubiquitous by 2013.

But we're now five years on from 2018 and nowhere near that level of adoption with EVs. They may eventually hit that hockey stick-type of growth, but I'm not convinced — the cost consideration for a car is far greater than for a phone.

EV registrations in Minnesota jumped from around 19,000 in 2020 to 26,000 in 2021, then 33,000 last year, the Department of Public Safety says. That's slower unit growth than Tesla experienced, and it represents a drop in the bucket of the 8 million vehicles registered in the state.

Enthusiasts may see Tesla as a tech business. The company acts that way. It's bro-y and showy, misses its own deadlines and has quality control that goes awry at times — classic traits in a Silicon Valley software firm.

Most of us see it as just another carmaker, one that needs to be better before we buy one of its products.