The market is conflicted in its outlook for controversial electric car maker Tesla Motors Inc (NASDAQ:TSLA). Both the bull and bear market are passionate about where they see Tesla heading. Just take a look at the spread of analyst price targets from $155 (-38% downside) to $338 (33% upside) and it’s clear that the market can’t make up its mind. The bearish case for Tesla has been well stated but I believe that it has been overdone.
In fact, if you peer through the clouds you can find many convincing reasons why stock prices will surge above the $300 mark in 2017. Here are five of those reasons:
- Trump’s Plan to Jumpstart US Manufacturing – Tesla shares are up close to 40% since the election. Why? The President doesn’t believe in climate change (he called it a “Chinese hoax”) so it’s certainly not his passion for environmentally ‘clean’ cars, but what he does believe in is US-based manufacturing. Tesla has 83% of its workers in the US, and the numbers are growing as it expands its two US facilities. This puts Tesla in a very good position with the President, who is reported to own a Tesla car himself (one of two American cars in his collection). Most importantly, as one of the only US-based car manufacturers, Tesla will not suffer if Trump does introduce a strict import tax.
- Carbon Tax Idea – Tesla CEO Elon Musk may not see eye to eye with the President on all issues but there is an open channel communication between the two that could work to Tesla’s advantage. For a start, Trump named Musk as one of his economic advisors back in mid-December. The ‘Strategic and Policy Forum’ will apparently ‘meet with the President frequently to share their specific experience and knowledge.’ Musk can use these opportunities to push for the introduction of a carbon tax, which would up gasoline prices. Musk recently tweeted his support for the proposed secretary of state Rex Tillerson, later telling tech mag Gizmodo that this is the right person to introduce a carbon tax. Indeed, Tillerson, (perhaps paradoxically) a former ExxonMobil CEO, has spoken publicly over the years about why a carbon tax could be a better way of reducing emissions than the hodgepodge of current approaches.
- Growing Market in China – China’s electric car market is growing fast and Tesla currently has a 2% share. China is now the second-largest market for Tesla and the company’s growth in China over the course of a year has been significant- in the first nine months of 2015 Tesla reported deliveries of 3,025 cars- in July 2016 Tesla had already delivered 3,287 units since the start of the year. And it looks like Tesla’s market share will be growing: Tesla is improving its network of car chargers across China and it also plans to build a manufacturing plant in Shanghai. This would solve the problem of the current import tax on Tesla goods of 25% which makes it a challenge for the company to compete with local companies.
- Self-Driving Cars – If you strip away the fallacy that self-driving cars can only exist if they drive perfectly all the time then it’s much easier to see their long-term potential. As long as self-driving cars are significantly safer than humans, then they seem to have a place in the auto-market. Tesla is currently trialing the cars in ‘shadow mode’ which enables it to collect sufficient driving data before rolling out the full self-driving mode. However as Tesla points out the exact availability date will depend on local regulatory approval which may vary widely between jurisdictions.
- Gigafactory – Tesla’s Gigafactory in Nevada is tasked with producing enough lithium ion batteries to meet the planned production rate of 500,000 cars per year, which Tesla says will be in “the latter part of this decade”. The Gigafactory began mass production of these batteries on Jan 4 even though the factory is only 30% complete. The design means that the factory can become operational in stages during construction, enabling Tesla to ensure that production will not be constricted by insufficient battery production.
Disclaimer: The author has no positions in the stock mentioned. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.