04 Aug Tesla Still on a Tear As Model 3 Deliveries Begin
If Wall Street can be trusted, Tesla Motors (TSLA.O) is about to go mainstream. Shares of Elon Musk’s great hope for the future of sustainable driving closed at $347.09 on Aug. 3, up $21.20 from opening bell, or 6.51%.
The company has been on a tear in 2017, with stock prices up 63 percent year-to-date, further underlining Wall Street’s confidence in the company’s future. In April, Tesla briefly surpassed GM in total market cap, making it the world’s most valuable car company.
All this comes as the company is making the first deliveries of its vaunted ‘Model 3.’ With a price tag of $35,000 before tax incentives, the Model 3 is billed as Tesla’s first “affordable” vehicle for the masses. Musk reports that Tesla is taking 1,800 new Model 3 orders per day. Orders for the company’s other two models—the S and the X—according to Musk, are up year-on-year, as well.
Despite all the rosy news, however, many analysts urge caution, reminding that the 14-year-old company has yet to turn a profit. On Wednesday night, the company reported its quarterly earnings for Q2 2017. Depending on who you ask, losses were larger or smaller than expected. Paul Santos at Seeking Alpha reports that the Tesla’s actual losses for the quarter were -$2.04 earnings per share, while expectations were -$1.80 per share.
Musk himself has cautioned that the first six months of production for the Model 3 will be challenging. In fact, Musk has gone so far as to characterize this initial stage of production as “manufacturing hell.” Tesla will be working diligently to iron out the significant kinks involved in ramping up manufacturing capacity to meet the demands of some half-million orders of the Model 3 received to date. And none of that includes continued production of the Model S and X.
Still, Musk remains upbeat regarding Tesla’s future, reporting that profit margins for the Model 3 will be a healthy 25%—higher by far than the margin for any other Tesla vehicle. Moreover, Musk seems convinced that the Model 3 will, at long last, transform Tesla into a profitable endeavor. He has assured investors that Tesla will hit its production target of 10,000 vehicles per week by the end of 2018.
Naysayers, however, doubt such lofty promises will come to pass. Additionally, more-established players in car manufacturing are just starting to release their own all-electric products onto the market, a fact that could imperil Tesla in coming years.
Following the Wednesday report, brokerage firm RBC Capital Markets raised its target price for Tesla $31 to $345. This target is significantly higher that the median target of $322. Still, an RBC Capital Markets representative admitted that the company will be hard-pressed to hit its targets without some significant “growing pains.”
On a personal level, I’ve followed Elon Musk’s career since back when he was a founder of PayPal. If there’s one thing I’ve long-since come to admire about him, it’s his savvy and resilience. When he says he will never, never, NEVER give up, never stop pushing upward and onward, I believe him 100%. That said, I agree with cautious analysts who urge restraint regarding Tesla.
At this point, I’m not rushing in to increase my investments in Tesla. With shares prices at $347.09, now might not be the time to barrel in with a hefty investment. However, neither would I advise dumping Tesla stock in a panic. To my thinking, the better plan might be to hold steady and watch what Musk says and does closely in the coming months. It never hurts to talk to an investment professional, either.