Tesla Stock predictions

Tesla Motors, Inc. designs, develops, manufactures, and sells electric vehicles, electric vehicle powertrain components, and stationary energy storage systems in the United States, China, Norway, and internationally.

In the words of CEO Elon Musk, the past few months have been “excruciating” for the luxury electric car manufacturer, Tesla. Shares have been down by over 35% since the beginning of the year, compared to the S&P 500, which has been down 10%. Tesla investors have been concerned about Tesla’s ability to compete with larger auto companies, the major question being whether or not Tesla could feasibly scale up their production. The company has been slow to roll out its new crossover SUV, the Model X and many analysts believe that low oil prices have made the electric car less appealing. Furthermore, the company has been burning cash at an alarming rate; their cash reserve has fallen by $700 million since December 31st, and the company has burned $2.9 billion of cash in the past six quarters. With the company’s shares in apparent free-fall, it has been easy for many people to write off the company as a lost cause. However, the recent fourth quarter results and analyst conference have shown that Tesla is committed to long-term success, fueling hope among investors causing the company’s stock to shoot up in pre-market trading.

( Source: Google Finance )

The actual numbers for the fourth quarter were not particularly great. The company posted a net loss of $320.4 million for the quarter, almost double what it lost in the previous quarter, and making it 11th consecutive quarterly loss for the company. For the year 2015, Tesla posted a loss of $889 million, or $6.93 a share. Fourth quarter revenue increased by 27%, from $956.6 million to $1.21 billion. Tesla’s revenues actually missed the estimates of analysts polled by FactSet, who expected revenues of $1.85 billion. So, considering that Tesla reported losses, continued to burn cash, and missed analyst expectations what exactly caused the stock to increase so much last evening? The answer lies in Elon Musk’s forward outlook. The CEO explained in yesterday’s quarterly conference call “I feel very good about things right now.”

The most significant point from the earnings was Musk’s forecast that his company would become net cash flow positive for the year 2016, beginning in March, and that they will ultimately be profitable by the fourth quarter. This was encouraging because the company had invested $1.6 billion in capital expenses for the year, mostly in the Nevada Giga factory, where the company plans to start battery cell production. Musk explained that looking at core operations from the fourth quarter,

the company generated $179 million of positive cash flow, by increasing deliveries by more than 50% since the third quarter. Tesla was also encouraging in the fact that they do not plan on using any outside sources of capital, beyond the capital that is generated from leasing and finished goods inventory, to fund $1.5 billion of expenses in the coming year.

The letter to shareholders explained that the company was able to generate this cash as the company managed to increase global new car deliveries of the Model S by 76% year-over-year. The company also explained that the Model S has taken market share from every major competitor to become “the number one selling comparably priced four-door sedan.” Tesla explained that the Model S is the only car in its class to have had growing sales for the year. Throughout all of Europe, the Model S sold more models than both the Audi A8 and A7 combined, and the BMW 7-Series and 6-Series combined. Even with this growth in sales, Tesla Motors believes that they are “substantially underpenetrated in all of our markets” due to their limited retail presence. Tesla is also very positive about the sales of their used cars, explaining that used Teslas sell for more than their expected residual values.

(Source: Tesla Motors )

The second major announcement was that Tesla will be revealing its Model 3 on March 31st and that it plans to start production and deliveries in late 2017. The model 3 is the supposed to be a major item for Tesla, as the company aims to deliver its first mass-market car to be priced at around $35,000. The company made their ambitions more realistic, as the CEO took to twitter to announce that the company will begin taking reservations for the model 3. Currently, we know that the Model 3 will be about 20% smaller than the Model S, and will receive over 200 miles of range per charge.

(Source: Twitter)

The third significant announcement from yesterday’s session was Tesla’s sales prediction for 2016. The company plans to deliver between 80,000 and 90,000 new Model S and Model X vehicles in 2016. This number represents major growth, considering that the company has delivered 107,000 vehicles since 2012. Tesla believes that they will deliver 16,000 of the higher priced Model X by the end of the current first quarter. The company is ramping up the scale of their production, and they plan to be able to produce 1,000 Model X’s a week by the end of 2016. Furthermore, the company has taken steps to improve manufacturing efficiency, and they believe that by the end of 2016, gross margin on the Model S should be around 30% and gross margin on the Model X should be around 25%.

(Source: Tesla Motors )

Further ambitions for 2016 include plans to open up 80 new retail locations and service centers, and 300 new Supercharger locations. The company plans to significantly develop their autopilot feature. Musk explained, “Tesla Autopilot is learning at the rate of over a million real-world miles per day.” This is incredible considering that Google’s self-driving car has traveled a total of 1.4 million miles since its inception in 2009.

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database and utilizes it to predict the flow of money across 7,000 assets. The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

In the forecast from February 10th 2016, I Know First was bullish on Tesla for the short and long term.