Despite the fact the electric vehicle purveyor only sells a small fraction of the units of the established players, investors look beyond Model 3 production ramp fears, a large cash burn rate and a very extended valuation to push shares to fresh highs.
In trading on Monday, shares are up another 3.4% to push beyond the $310-a-share threshold. This is up nearly a third from the lows hit in late February. And it represents a whopping 72% rise from the early December low. Tesla’s market capitalization hit $51.17 billion, eclipsing GM’s $51.1 billion and Ford’s $45.1 billion valuations.
The hype is real as the company continues to tick many of the right boxes for Wall Street: It’s a play on autonomous vehicles, a play on EVs going mainstream, it’s both a big-tech and socially-responsible investing play, and it’s poised to benefit should President Trump, as has recently been reported, embraces a carbon tax to gain Democratic support for hits tax reform plans.
Yet one wonders when hopefulness turns to hard expectations and investors demand actual results. GM maintains a 17.3% market share and has beat Tesla to market with a mainstream EV with a 200-plus mile range; compare that to Tesla’s 0.2% U.S. market share and its yet-to-be-launched Model 3. The company is targeting the production of 500,000 vehicles next year, up from just 84,000 last year.
Much of the recent rise in TSLA was driven by the allaying of capital raising fears after China’s Tencent Holdings Ltd (OTCMKTS:TCEHY), owner of Chinese social network WeChat, acquired a 5% stake in the company.
Possible overconfidence is appearing, with TSLA CEO Elon Musk taking to Twitter recently to mock the bears. Headwinds noted by the skeptics, including everything from a weak balance sheet, tendency to dilute existing shareholders with secondary offerings and even questionable product decisions like avoiding LIDAR technology, have simply not mattered.
Even Wall Street analysts are throwing in the towel, with Piper Jaffray analyst Alexander Potter upgrading the stock to overweight with a $368 price target — a 65% increase — admitting “we sympathize with bears — but their (arguably rational) arguments probably won’t matter.”
The company will next report results on May 24 after the close. Analysts are looking for a loss of 69 cents per share on revenues of $2.59 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.