3 Reasons Why Tesla Inc (TSLA) Might Be the Stock for You
Following the announcement of record-breaking delivery and production figures, we may well ask ourselves, is controversial electric car-marker Tesla Inc (NASDAQ:TSLA) still so controversial? The answer to that question might well be yes, but the market does appear to be slowly acclimatizing to Tesla’s unique strategy and ambitious goals.
There is no doubt that Tesla still has a risky future- especially in the crucial ramp up to the production of Tesla’s much-hyped Model 3 sedan. However positive drivers on the stock are increasingly accepted by the market and share prices are now near all-time highs at $278. Here we look at just 3 reasons why Tesla has become an increasingly convincing investment opportunity:
- Record-Breaking Deliveries – Tesla just announced that it delivered a record 25,000 vehicles in the first quarter of 2017 ended in March, split between its existing Model S and Model X vehicles. This translates into an incredible year-on-year quarterly increase of deliveries of 69%, easily beating analyst expectations. Add to this the fact that Tesla produced 25,418 automobiles in the quarter, and you can see why the market was impressed/shocked by this latest update. In fact, if these numbers are multiplied forward then the company is actually on track to achieve its stated guidance of between 47,000 to 50,000 deliveries in the first half of 2017 (growth (YoY) of 61%-71%).
- Tencent Backing – Chinese internet company Tencent holds 5% of Tesla shares, an SEC filing made on March 28 reveals. Tencent acquired its 8.2 million Tesla shares through private placement and open market purchases. Tencent is now the fifth largest shareholder in the company behind CEO Elon Musk (21%) and investment firms Fidelity, Baillie Gifford, and T. Rowe Price. The investment by Tencent is not just a show of support for Tesla, but for the autonomous car market as a whole. Indeed, Tencent has made a series of strategic investments in autonomous and electrical vehicle (EV) companies such as NextEV and Future Mobility. No doubt Tencent is hoping to up its game against Chinese rival Baidu which has already tested autonomous cars in China back in 2016. While this serious investment not only validates Tesla’s commitment to electrical and autonomous vehicles, ultimately Tesla could also benefit from Tencent’s autonomous driving push in China. And Tencent’s involvement could help Tesla overcome the barrier of being a foreign company in the Chinese market especially when it comes to autonomous cars or Tesla’s Mobility service (an Uber-style service).
- Model 3 Safe Bet – The Model 3 itself has extreme potential. The $35,000 all-electric sedan will run on batteries that have an 8-year guarantee with heavy discounts for recharging batteries during ‘quiet’ times. Recharging at Tesla’s 200 station network will be free and should take just half an hour. On top of these significant gas savings, electrical cars require comparatively very little maintenance with far fewer parts to fix and repair especially bearing in mind that the cars run at roughly room temperature rather than the extreme heat of standard cars.
Meanwhile, top Morgan Stanley analyst Adam Jonas made an interesting point recently when he highlighted the value of the Model 3’s impressive safety statistics. The special hardware and software (which includes 8 cameras, ultrasonic sensors and a supercomputer) of the Model 3 could actually make it 10x safer the average car. This is likely to lead to lower insurance premiums for the Model 3 and significantly boost demand says Jonas, who reiterated his buy rating on the stock with a $305 price target (4% upside potential). Not that demand appears to be a problem right now- about 500,000 Model 3 vehicles have already been reserved.
Now consider the scale. Bear in mind that Tesla plans to be producing 500,000 Model 3s within four years and 1 million vehicles by 2020 and the disruption that Tesla could wreak on the traditional auto market if all goes to plan becomes quickly apparent. Watch this space.
The stock has a hold analyst consensus rating according to TipRanks, while the average analyst price target represents a 14% downside from current levels (although note that this figure shrinks to a 7% downside when only price targets from best-performing analysts are included).