Tesla Inc. (TSLA), despite suffering a fall out with many investors and now with a stock price that's plunged 50% off its peak, has the potential to rebound under CEO Elon Musk just as Netflix Inc. (NFLX) did under CEO Reed Hastings in 2011. Back then, the streaming giant’s stock was 80% off its highs and was also abandoned by many investors, according to a Barron's column by author and growth strategist Eddie Yoon.
Tesla vs. Netflix: Biggest Declines
- Tesla: 50% decline June 2017 to June 2019
- Netflix: 80% decline July 2011 to November 2011
Growth Strategist Compares Young EV Market to Streaming in 2011
Yoon, the founder of think tank and advisory firm EddieWouldGrow, notes that Netflix’s decline was followed by an eight-year stretch of growth, in which the firm successfully introduced new pricing and implemented a change in strategy to focus on streaming. The firm believed in the long-term growth story for its key market, abruptly splitting from its DVD rental business and drawing skepticism from many.
Similarly, Yoon says Tesla has been “spot on” in their belief that demand for electric vehicles will grow exponentially. He notes that last year, EVs made up just 2% of the total new cars sold in the U.S., yet in a study conducted by AAA, 20% of Americans indicated that they wanted an EV. Meanwhile, EVs already have an approximate 10% share of the market in California, while the Silicon Valley automaker accounts for more than 60% of the share of growth of the next-gen vehicles.
“The idea that Tesla’s 30,000 dip in deliveries in Q1 2019 versus Q4 of 2018 highlights a fundamental demand problem with either electric vehicles (which could easily number in the millions in the near future) or Tesla itself (since their products are beloved by consumers) seems like a stretch,” wrote Yoon.
The Advantage of Pricing Power
While Tesla faced the headwind of a 50% reduction of the $7,500 federal rebate for EVs at the end of 2018, at the same time as its dip in deliveries, Netflix similarly struggled with a backlash from its higher pricing. Yoon notes that Tesla and Netflix both believe in their pricing power, especially if the firms continue to improve their product.
Netflix succeeded in upping prices as it continued to pump out better personalized recommendations for users, as well as more content, including original, award-winning content. While the streaming leader has lost subscribers in that process, its total revenue and profits have grown enough to offset losses, wrote the investor.
“The reality is that Tesla’s pricing power is strong,” wrote Yoon. He cites the adoption of Tesla vehicles by a wide stream of consumers, from mainstream car owners to other luxury brand owners. Per CEO Elon Musk, the top five cars traded in for Teslas are Honda Accord, Honda Civic, Toyota Prius, Nissan Lead and BMW Series 3. He sees it as no coincidence, then, that as more than 180,000 Teslas were sold in the U.S. last year, collective vehicle sales of the Prius, Camry, Accord and Civic fell by 15%, or 190,000 cars between 2016 and 2018.
Yoon also highlights the similarity between Netflix and Tesla’s “self-inflicted” issues with communication and execution.
That being said, investors and shorts in the past have lost big money betting against Elon Musk and Tesla.
The entrepreneur is regarded by many of his loyal fans as a resourceful, creative and relentless founder. Just like Reed Hastings, Musk has repeatedly found a way to get Tesla to rebound and defeat the naysayers.
Tesla has shown the ability to make top notch sedans – before the Model 3 – which received top ratings from Consumer Reports and others. Musk warned in 2012 that those who bet against Tesla would be in for a “tsunami of hurt.” The company has in the past short sellers out of billions of dollars, per a Thinknum Media story published in 2018. Meanwhile, Tesla still has a cult following among consumers and many investors.
Despite Yoon’s compelling comparison of Netflix and Tesla at their lows, many analysts have decided to throw in the towel on Tesla, putting the stock at risk of a further decline. Morgan Stanley’s worst-case scenario pegs Tesla’s bottom at $10, while Citi sees a 40% chance of shares plummeting to $36.