Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

5 Reasons to be Excited About Tesla Inc (TSLA) Shares

Controversial electrical automaker Tesla Inc (NASDAQ:TSLA) divides market opinion like no other stock- in fact many analysts have avoided rating or valuing the shares simply because the future of Tesla is so uncertain. TipRanks shows that the analyst 12-month targets vary widely from as low as $160 (-37% downside) to a high of $375 (46% upside). This means that there is certainly an argument for both the bull and bear picture- but we feel that, right now, the bear story is being overplayed.

Risks such as heavy debt levels, fluctuating international sales, troubling cash burn rate and negative cash flow as well as increasing competition all give the investor pause for thought, but there are also positive catalysts on the stock that deserve proper market recognition. With share prices at $255 vs highs of $280 on February 14, here are five reasons to be (cautiously) bullish on Tesla and buy on the dip:

  1. Model 3 Production – Tesla’s Model 3 all-electric luxury sedan was revealed back in 2016 and is due to go into production in July 2017. The key question is whether Tesla will be able to achieve such an optimistic date. Only yesterday, Tesla announced a $1 billion capital raise to help strengthen its balance sheet before the Model 3 launch. So far production appears to be on schedule – Baird analyst Ben Kallo says he expects share prices to rise as the production date approaches and milestones are reached and concludes that “we want to own ahead of and into the Model 3 launch.” Tesla intends to steadily ramp production to exceed 5,000 vehicles per week during 4Q17 and 10,000 vehicles per week in 2018.
  2. The World’s Best Car – let’s not forget that Tesla’s history of high-quality production. In 2015 Tesla’s P85D (one version of the Model S) was called “the best-performing car that Consumer Reports has ever tested.” In fact, this was the first car tested by Consumer Reports to receive a perfect score of 100. The Model 3 will be much cheaper (think $35,000 before incentives instead of over $100,000) but still the P85D is an encouraging sign of Tesla’s capability.
  3. China Potential – the lower cost of the Model 3 car could also lead to increased demand in Europe and China. While sales fell in Europe during 2016, sales in China actually tripled to over $1 billion in a breakout year for Tesla (equivalent to about 11,000 vehicle deliveries). Cracking China is crucial given that the Chinese electrical vehicle (EV) market is one of the largest in the world. Currently Chinese manufacturer BYD dominates the EV market but Tesla has been busy building a new adapter in China to access charging stations on a national standard. The automaker has also expanded its Chinese service stations and stores including the eye-catching Shenzhen store in “Longhua Auto City”.
  4. Energy Storage – the opportunities for Tesla here are vast. It has even been suggested that energy storage could represent a $12 billion market for TSLA in the space of just five years. According to Baird’s Ben Kallo, the market has undervalued this opportunity for Tesla as electric demand continues to increase while oil consumption decreases. Tesla is the market leader in energy dense battery production- which ultimately can be strung together to kick fossil fuels off the grid. In fact Tesla is now in discussion with the Australian government to try and assist with South Australia’s energy crisis by building a 100 megawatts battery storage farm. CEO Elon Musk says he can fix the problem in just 100 days of signing a contract.
  5. Solar – Tesla acquired solar energy provider SolarCity in 2016 for $2 billion and has since announced that its new solar panel product could produce power for an impressive $0.55 per watt. “So you have an integrated solar roof with a Powerwall and an electric car, and you just go into a Tesla store, just say yes, it just happens. It all works, it’s seamless and you love it” Musk said at the time. The integration of SolarCity is going better than expected and management have indicated that it could generate approx. $500 million in cash by 2019.

The analyst consensus rating on the stock on TipRanks is Hold with 7 buy, 6 hold and 5 sell ratings published on the stock in the last three months. The average analyst price target suggests a -3.36% downside from the current share price.

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.

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