Why Tesla Inc (TSLA) Stock Will Race to $400

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TSLA stock - Why Tesla Inc (TSLA) Stock Will Race to $400

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It doesn’t seems as if anything can stop Tesla Inc (NASDAQ:TSLA) from racing to $400 per share. Despite last week’s reversal in flying-tech stocks — which sent the Nasdaq Composite index to its worst two-day performance this year — TSLA stock is now perched right below all-time highs yet again.

Why Tesla Inc (TSLA) Stock Will Race to $400

This suggests that all the chaos, caused by “opportunistic fear,” is now in Tesla’s rear-view mirror for now.

Tesla & Musk Are Just Punishing the Doubters

Tesla is hardly the relative bargain it was when I first recommended the stock back in in January, but the same arguments I raised then still apply today.

Autonomous vehicles, connected cars and cleaner/renewable energy are expected to be strong growth drivers in the years ahead. But if you want to gain exposure in all of these areas … well, good luck finding a better single investment than Tesla.

TSLA stock, currently trading around $376, is right below all-time highs set last week. But the higher Tesla drives, the bolder the company’s doubters have gotten. According to data just released by financial analytics firm S3 Partners, the California-based electric maker Tesla saw its short interest surpass $10 billion last week, ranking it as the second-most shorted stock on the market.

No. 1? Alibaba Group Holding Ltd (NYSE:BABA), with $16.7 billion in short interest, ranks higher … and also has raced to all-time highs with a 55% gain this year, making mincemeat of the shorts.

Investors are betting heavily against CEO Elon Musk. But with TSLA stock up 75% year-to-date and 72% over the past year, the question is: How much more punishment can the short crowd tolerate?

Even last week’s combination body shot couldn’t slow TSLA down.

Automotive News reported that AAA insurance plans to raise rates on Tesla cars by as much as 30%, which means Tesla vehicles may now be even more expensive to own.

The insurance news comes on the heels of investors learning that Toyota Motor Corp (ADR) (NYSE:TM), Japan’s largest carmaker, has sold its remaining TSLA stake at the end of 2016. “Our development partnership with Tesla ended a while ago, and since there has not been any new developments on that front, we decided it was time to sell the remaining stake,” Toyota spokesperson Ryo Sakai told Reuters.

Toyota still held 2.3 million shares as of March 2016, a position that was valued at almost $500 million at the time. But Toyota may soon regret this decision, given how quickly Tesla’s fundamentals are improving.

Running Over the Bearish Thesis

But while Toyota has ended its profitable six-year relationship with Tesla, the market continues to brush off these speed bumps in anticipation of the growth Tesla is expected to deliver in the next 12 to 18 months.

As such, Tesla’s market valuation — now at $57 billion — has soared this year, surpassing that of both General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F). And the company’s production, while still a whisper compared to the two automaking titans, is ramping up.

Tesla’s facilities for Model 3 production are on track to produce 5,000 vehicles per week by the end of 2017. The company insists it can double that rate to 10,000 per week in 2018.

But that comes at high cost, which TSLA skeptics insist will kill the company’s profitability. Last week David Einhorn, billionaire hedge fund manager of Greenlight Capital, told Bloomberg TV that he’s staying short Tesla stock, despite the recent gains.

TSLA is overvalued on the basis of the company’s lack of profitability, Einhorn insists. The hedge fund manager says his short position is sized to give it time to wait out the punishment, though he conceded that he’s not sure when the Street will focus on Tesla’s lack of profitability and less on the company’s innovation.

In the mos recent quarter, Tesla posted a wider-than-expected first quarter loss that I called a solid buying opportunity. Despite the earnings miss, I saw something the market overlooked: Tesla posted automotive revenue of $2.28 billion, which rose 15% sequentially and 123% year-over-year. The gross margin improvement underscores the extent to which CEO Elon Musk has already begun to focus on profitability.

Just as impressive, automotive gross margins came in at 27.4%, marking an improvement of 480 basis points sequentially, and 340 bps year-over-year.

Bottom Line on TSLA Stock

While Elon Musk continues to draw criticism for the company’s high cash burn, he hasn’t completely ignored profits. It’s just coming at a slower rate while he’s busy investing in the future. And given that Tesla has now topped its delivery forecast in two of the past three quarters, the company’s investments have begun to pay off.

From my vantage point, Tesla is operating on all cylinders. I expect TSLA stock to reach $400 by the end of the year, driven by increased enthusiasm for the Model 3 combined with rising profit margins.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/why-tesla-inc-tsla-stock-will-race-to-400/.

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