Tesla Stock Predictions

Summary

Tesla Motors has seen it’s stock price fluctuate in the past two months due to concerns about ability to scale up manufacturing

Tesla Motors has seen it’s stock price fluctuate in the past two months due to concerns about ability to scale up manufacturing Consumer Reports rescinded its recommend rating for the Model S due to reliability issues

3rd Quarter report looks promising for Tesla to reach production goals

Tesla Motors the electric car company looking to change the world by ending our reliance on oil needed to fuel the internal combustion engine has had a crazy couple of months.

At the end of August Tesla’s all wheel drive version of the Model S, the P85D, broke the Consumer Reports record where it earned a score of 103 out of 100. Around the time that Consumer Reports referred to the model S as the “best performing car we have tested”, Tesla was trading at $242.99, and things seemed great for investors. A month after this stellar review, Tesla announced the Model X, their revolutionary sports utility vehicle designed to be twice as safe as the next safest SUV. Another major event in the realm of Tesla was the October release of the autopilot feature, which was sent to approximately 40,000 vehicles over the air. With autopilot, Tesla vehicles were given the ability to steer, merge lanes and parallel park autonomously.

In early October, however, Tesla started to hear from its doubters. Shares fell down to $220.69 on October 9th as multiple Wall Street analysts downgraded the stock. Brian Johnson from Barclays lowered the price target from $190 to $180 saying that he was unsure if Tesla is able to successfully become a mass-market producer. Ben Kallo from Robert W. Baird & Co. lowered his price target to $282 from $335, as a result of skepticism towards Tesla’s ability to manufacture both the Model X and Model S in the same Fremont, California factory. The most bullish Tesla analyst, Adam Jonas from Morgan Stanley cut his price target from $465 to $450 citing concerns about the Model X’s price. Jonas explains: “Unless Tesla introduces significantly cheaper versions soon, we do not expect the company to deliver more than 20,000 units of Model X in 2016.”

Further Tesla criticism came from billionaire Jim Chanos who on October 12th went on Bloomberg to claim that Tesla is an overpriced car company, and that they are unable to scale up their operations in order to compete with other auto manufacturers, such as BMW that sells two million cars a year. Other concerns about Tesla resulted from valuation and the fact that Tesla is trading at 7.5 times sales. The argument was made that Tesla’s approximately $30 billion market cap cannot be justified by Tesla’s sales of around 50,000 cars.

To make matters worse, on October 20th, Consumer Reports rescinded its recommend rating when they released a new report questioning the cars reliability. The report stated that Tesla is “likely to involve a worse-than-average overall problem rate.” The report went on to detail problems with the cars drivetrain, power equipment, driving equipment, the center console, and squeaking and rattling sounds. Tesla shares fell by 8% immediately after the report, closing the day at $213.03. Tesla continued to slide. Shares closed at a low of $206.93 on October 30th, as investors continued to wonder whether or not Tesla was overvalued and if they would be able to meet production demands.

Despite the grim October, Investors were relieved after Tesla posted their quarterly earnings on November 3rd, which beat expectations. Tesla reported GAAP revenues of $936 million, which show a year-over-year increase of about 10%. Overall, however, Tesla posted a net loss of $230 million, and $1.78 loss per share. Tesla reported non-GAAP revenue of $1.24 billion and $0.58 adjusted losses per share. Despite the loss, these numbers are quite good considering many analysts predicted worse. Because Tesla is still in its early phases, profitability is not necessarily the best indicator of performance. It is more important to look at growth potential, which to the delight of investors is looking hopeful. In 3Q15 tesla shipped 11,603 cars, which is almost 50% more than they the sold during the same time last year. Furthermore, Tesla has picked up its leasing operations through its own independent finance arm, as opposed to using commercial banking partners. Tesla directly leased 494 cars to customers in the Q3.

In the third quarter of 2015, Tesla had a negative free cash flow of $595 million. The company invested $392 million for capital expenditure and another $203 million in operating cash flow.

The most meaningful metric is Tesla’s plans for the fourth quarter. They announced plans to deliver between 17,000 and 19,000 cars in Q4, which means they will sell between 50,000 and 52,000 cars in fiscal 2015. Tesla produced 13,091 cars in 3Q15 and they plan on upping that number to between 15,000 and 17,000 for the fourth quarter. This numbers would indicate up to 93% yearly growth. In terms of global reach, Tesla announced that they have opened up two new retail locations in China, and that they expect strong demand growth in China.

In Q3 Tesla also began production of Tesla Energy products, such as Powerpacks and Powerwalls. Production of these products is currently taking place in the Fremont factory; however, Tesla has laid out their plans to shift production to their Nevada Gigafactory in Q4. Given the strong demand for Tesla Energy products in the US and worldwide, Tesla is in a position for strong growth in 2016. Tesla closed at $230.60 on November 3rd, after earnings were reported.

Most recently, Tesla received the support of billionaire Ron Baron, the chairman of Baron capital. On November 6th , Baron went on CNBC an expressed his belief that Tesla will quadruple in the next 5 years given how much room he believes the company has to grow. As mentioned, Tesla is expected to sell 50,000 vehicles this year, a figure that they plan to grow to 80,000 next year and then to half a million by 2020. Baron, who owns 1.2 million shares of Tesla is concerned with competition from larger more scalable auto manufacturers because he believes that they are already to invested in current factories and engines, whereas Tesla who is essentially starting from scratch is more willing to take the big risks needed to manufacture electric vehicles.

Currently, the I Know First algorithm has produced a bullish signal for Tesla for the next year.