It remains to be seen if Tesla Motors Inc (TSLA) can actually turn a profit selling the newly unveiled Model 3. But, to the extent hype matters, the bullish case for Tesla stock got a whole lot better on Thursday.
That’s when TSLA began taking pre-orders for the ballyhooed electric vehicle, which unsurprisingly turned into a media event that eventually took on a life of its own … just as scripted.
It’s just what owners of Tesla stock were hoping to see.
In any case, with the dust now settling, it’s time to take a step back and philosophically ask “What just happened?” and “What’s next?” TSLA certainly validated its core premise of producing functional electric vehicles, but it also may have done something it wished it hadn’t accomplished.
150,000 and Counting
As of the most recent look, more than 150,000 Model 3s had been pre-ordered, despite the fact that the first of the series won’t be delivered for a year-and-a-half.
Elon Musk said 115,000 orders had come in before anyone had even gotten a look at the thing.
The $1,000 deposit required to reserve a Model 3 is refundable, but it’s unlikely anyone willing to stand in line with a few hundred other people — most of the day — and tie up $1,000 until the middle of next year to buy a vehicle sight-unseen isn’t going to follow through on the purchase. Indeed, it’s not unrealistic to think that for every individual who made a down payment of $1,000 to buy a vehicle that doesn’t yet exist, there may be two more (at least) willing buyers who will purchase one once they can see it in a showroom.
Driving that demand is mostly the vehicle’s projected functionality; it will travel at least 215 miles on a single charge, and unlike many other electric vehicles, the Model 3 doesn’t look more like a toy and less like a car. Of course, it doesn’t hurt that it comes with the Tesla name and logo on it.
It’s a lifestyle statement, too — one with a reasonably affordable base price of $35,000.
Here Come TSLA’s Competitors
Comparisons of Apple Inc. (AAPL) to Tesla Motors as well as comparisons of AAPL stock to TSLA stock have been common, and for good reason — the parallels are palpable.
Apple is credited for making the first smartphone the masses wanted regardless of its price, and Tesla has done the same for cars. And Apple (more or less) managed to make an iPhone affordable for most, and now Tesla has done the same. The stocks of both companies saw meteoric rises on the heels of their respective products’ launches.
The parallels come with a downside, though.
The downside of Apple’s success is that once the iPhone was a proven moneymaker, competition came out of the woodwork and has been nagging at Apple ever since. Sure, the iPhone is still arguably the best-in-class. It’s not as if the majority of smartphones sold are iPhones, however. Only 18% of Q4 2015 smartphone deliveries were iPhones. Samsung delivered 21% of the fourth quarter’s smartphone sales, and the other 61% of deliveries were split up by several other manufacturers … most of which were powered by the Android operating system.
It was Apple, however, that pretty much validated the category and got the ball rolling.
Tesla Motors got the electric vehicle ball rolling in earnest in June 2012, unveiling the Model S to rave reviews and commensurate sales. It was only on March 31 of 2016, however, that TSLA validated the idea of a reasonably priced electric car, proving the demand is there if it’s the right vehicle.
Now with EVs validated, as was the case with smartphones, other manufacturers will begin ramping up their electric vehicle efforts (even more so than they have already).
Fortunately for owners of TSLA, like Apple, Tesla is the pace-setter. That helps sell the brand.
Bottom Line for Tesla Stock
It’s undoubtedly an exciting time for the company, electric vehicles in general and for Tesla stock holders in particular. Eventually though, one key question currently being ignored will matter: Can TSLA actually turn a profit by selling a $35,000 vehicle en masse?
It hasn’t been profitable selling higher-end vehicles, though what it has lacked up until now is scale. The company only sold about 50,000 vehicles last year, but says it plans on making 500,000 electric automobiles per year by 2020. That may be enough to get it over the profitability hump. Or, it may not. Nobody really knows… not even Elon Musk.
For the time being though, it doesn’t matter. Tesla stock is getting some serious traction on the hype of the Model 3 alone, and that’s good enough for the market right now.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.