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Tesla Motors Inc (TSLA) at a Crossroads: 3 Pros, 3 Cons

Tesla is on a run on Model 3 sentiment, but will it last?

Tesla Motors Inc (NASDAQ:TSLA) is a divisive company that both investors and consumers feels quite strongly about. To some, TSLA stock is an overhyped investment that sells a relatively low volume of vehicles and has a grossly overvalued share price. To others, Tesla Motors and CEO Elon Musk are synonymous with innovation, and embody where the future is headed.


Since its 2010 IPO, Tesla has skyrocketed over 1,200% and has proven itself more than just fad. And more recently, since its February lows, TSLA stock has returned to favor with investors and mounted a more than 50% run vs. a rebound of about 8% for the broader S&P 500.

There’s clearly a lot going for the company right now, based on sentiment and based on high hopes for both its legacy Model S and its recently unveiled mass market Model 3. But Tesla is pushing up against a ceiling of $260 that the stock has struggled mightily to break through in the past and has never stayed above for more than a few trading days since 2014.

So is it time for Tesla to downshift yet again, or will we finally see that next leg higher for TSLA stock? Here are arguments on both sides:

3 Reasons to Buy TSLA Stock Now

Sentiment: Critics have long had a love affair with the Tesla Model S sedan, the Model X appears to be just as popular, and the Model 3 has racked up nearly 400,000 preorders. Viral videos about Tesla’s self-driving technology are making the company’s vehicles even more of a sensation with drivers and techies around the world. And when you consider this recent snap-back rally for TSLA stock, it seems that everybody out there is in love with this company right now. Why wouldn’t you want to join in this love-fest?

Growth: Tesla posted record deliveries of its Model S with 17,192 units of the electric sedan delivered in Q4 2015. That’s 48% more sequentially and 75% more year-over-year. And while there were plenty of bumps along the way as TSLA has rolled out its Model X SUV, targets are ambitious for 2016, with 80,000 to 90,000 total deliveries projected for 2016. That would be a huge jump over the 50,580 produced in 2015 — and, it would seem, hardly the end of where production and sales are headed.

Customer Deposits: One of my favorite measures of just how wildly popular Tesla vehicles are is the number of customer deposits. As of Dec. 31, in its annual 10-K filing, Tesla Motors Inc held a staggering $283.4 million in customer deposits! Using a very high number of $20,000 per deposit, which is about 20% down on a Model S with all the options or a cheaper version of the Model X SUV, that is a minimum of 14,000 vehicles that are already sold and just waiting to be produced! If you want a measure of future demand, this is it — and considering that figure is about 15% to 20% of total 2016 capacity, investors can have confidence that customers will be there this year and the next.

Now, for the negatives …

3 Reasons to Sell TSLA Stock Now

Competition: Sure, the Model 3 is coming and the flagship Model S is a smash hit with a group of Tesla loyalists. However, it’s not like Elon Musk is the only person thinking about electric vehicles in 2016. In fact, the Leaf is technically the world’s best-selling EV because Nissan Motor Co Ltd (OTCMKTS:NSANY) is a larger automaker with better production facilities and the ability to crank out more vehicles. There are a host of high-quality and lower-priced electric cars out there (here are a few frontrunners), so Tesla’s early-mover advantage is under threat.

Production Challenges: Equally troublesome is that, at the same time, TSLA is limited in its production capacity by its current facilities. Remember, back in October Tesla cut production targets thanks to the launch of the Model X complicating manufacturing for its core line of Model S sedans. It’s nice that consumers want this new high-priced SUV, but Tesla only has so much production space and so much output capacity. There is a chance that Elon Musk and other TSLA execs learned from the past and are better prepared for the Model 3 … but there’s also a chance the mass-market EV will suffer the same delays and bottlenecks as the Model X. That will not just be bad for consumers waiting to buy, but for revenue targets and Tesla stock as well.

Big Rebound Can’t Continue: As InvestorPlace chartist Serge Berger pointed out at the end of March, “this is one of the most epic V-shaped reversals I have ever witnessed.” And while the bottom clearly seems in based on the big rally, the nonstop push higher seems to indicate that investors have gotten a bit ahead of themselves. The market never moves in straight lines, and Tesla hasn’t really paused for a breather since its February lows. Rather than chase this stock here, then, traders should be looking for a pullback in TSLA stock in the very near future.

The Verdict on Tesla Motors Inc

In the short-term, it seems risky to chase Tesla. A lot of the enthusiasm for both the Model 3 and the Model X is now priced in, and shares clearly have responded based on the snap-back since February. History shows that TSLA stock can be quite volatile, so I wouldn’t chase this company here as it bumps up against resistance.

However, the long-term trend of Tesla Motors Inc seems to be higher — and given that production targets were cut across 2015, this year could be filled with easy-to-beat expectations on the revenue and production side.

If you already own Tesla stock, I would continue to hold in the hopes of the stock moving higher by year’s end. However, it seems wise to wait for a short-term pullback if you’re a new investors with your eyes on TSLA stock after this recent run. The rally since February is nice, but you missed it … so wait for the retracement and the next leg up later this year.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/tsla-stock-tesla-motors-inc-model-3/.

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