Tesla Inc (NASDAQ:TSLA) investors have to be elated with the performance of shares last month — they put out a roughly 11% gain in March compared to a nearly flat S&P 500. TSLA stock has tacked on another 7% so far in April, even with sluggish trading that has it slightly off its fresh all-time highs.
On April 4, the Tesla stock price reached above $300 for the first time since its initial public offering in June 2010. Tesla’s market cap has gotten so frothy that I recently wondered whether Ford Motor Company (NYSE:F) could, or would, buy the maker of electric vehicles.
Like the Tesla Model S and Model X, it feels like Tesla stock can go only so far before it runs out of gas … no pun intended. But for all its momentum, it’s worth exploring the idea of $400 as a next stop, as much as it is $200.
Let’s look at what would have to happen to hit either target, and which seems likelier.
Scenario #1: TSLA Stock Goes to $400
Tesla has been rising in 2017 in anticipation of the Model 3 — a relatively inexpensive electric vehicle that will bring more car buyers to Tesla — hitting the car market.
Although the starting price for a Model 3 is $35,000, San Diego data expert Ben Sullins suggests most of the 400,000-plus reservation holders will likely pay between $45,000-$55,000 for their vehicles once you add options most drivers want including an upgraded battery that gets a 300-mile range instead of the standard 215.
Not only is the average price of the Model 3 expected to be higher than $42,000 — the number CEO Elon Musk tweeted in April 2016 — but the average price of the Model S is likely to be as high as $90,000.
If you own TSLA stock, this is a good news/bad news kind of situation.
The good news? Revenue will be higher than anticipated providing a greater possibility that the Model 3 will ultimately make money. The bad news … I’ll cover in my discussion about Tesla stock and a $200 scenario below.
For $400 to be a possibility, its current stock price has to make sense, because if it doesn’t, a drop to $200 becomes more likely than rising to $400. Morgan Stanley analyst Adam Jonas recently discussed why he believes Tesla stock deserves a $300 share price:
“The sooner investors view Tesla as a transportation/infrastructure company rather than as just a car company. A significant portion of our $305 price target can be accounted for by the value of Tesla Mobility, an on-demand and highly automated transportation service we anticipate to be launched at low volume in 2018. Our DCF valuation of the core automotive business is $233.”
Of the 16 analysts with 12-month price targets, the high is $375, the low is $155 and the median price target is $245. From this perspective, it’s clear that many analysts don’t view Tesla in the way that Jonas does.
I’ve always been a fan of Tesla and CEO Elon Musk and do think it’s a stock most investors 45 and younger should consider for their retirement portfolio. But I could see why some analysts see a darker future.
Scenario #2: TSLA Stock Drops to $200
Question: How many vehicles has Tesla delivered in the past five years? Answer: 183,000.
Question: How much money has Tesla made the past five years? Answer: Zero. It has lost $2.8 billion, hence the need for additional debt and equity raises.
Can you see where I’m going with this?