Tesla Motors Inc (TSLA) has been clawing to get its momentum back this year, with shares falling, then recovering, then falling again.
Most recently, investors expressed skepticism following Tesla earnings. Despite an earnings beat, the company again posted a loss in the most recent quarter. Meanwhile, two key executives departed and Tesla announced plans for a secondary offering.
Cue the sell-off.
This past week, though, said secondary offering actually took place and the response has been much more positive. With that in mind, is the worse over for Tesla stock?
Not so fast.
State of Tesla Stock
When talking about Tesla’s secondary offering, we’re really talking about the company’s push towards the mass market. While Tesla could have simply remained a luxury manufacturer and kept selling about $5 billion worth of elite cars each year, it’s instead opening up to mainstream car buyers with the more affordable Model 3.
Tesla has pushed up its timeline for the affordable cars; its goal is now to produce 500,000 electric vehicles by 2018 instead of by 2020 — and that goal is what the funds raised from Tesla’s recent stock sale are for.
Tesla sold 6.8 million new common stock this week, priced at $215. While that was lower than its previous sale price of $242 in August of last year, it was enough to rake in $1.46 billion.
And it was enough to get investors slightly optimistic again, with Tesla shares gaining on Thursday and Friday of last week.
As I’ve mentioned before, the math argues for the Model 3 and the mass-market electric car. Aiming for a wider audience opens up a lot of opportunity, as more electric cars on the road translates to more demand for charging stations and other infrastructure, plus overall broader acceptance of the technology.
Such expansion should feed back into the company’s bottom line. And such expansion does seem promising considering that preorders, even since being revised downward, seem strong.
But despite the stock gains and speculation, raising money for the production and making it happen are two very different things.
Efraim Levy at S&P Global Market Intelligence noted such, saying: “while pre-orders suggest demand could be there (for the Model 3), with recent executive departures and more competitive offerings, this may be tough to achieve.”
At the same time, experts in the auto industry have expressed skepticism around the production goal, noting that only veteran automakers have such capacity and adding that suppliers could jack up prices given the timeline.
Additionally, rushing production could hurt quality, which is what Tesla hangs its hat on.
Bottom Line for TSLA
The point is that this week’s funding, which seemed like it might be the beginning of a turnaround for Tesla stock, is really just the first step in a long and windy road to the mass market.
There are plenty more variables and hurdles in the way. The company has set a dramatically high bar for itself, and high expectations leave Tesla with even further to fall if things go wrong.
While Tesla’s plan could be a gamechanger, I am waiting for some more concrete evidence that the company can execute before I go long.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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