Whenever Tesla Inc (TSLA) Stock Dips, Double Down

Advertisement

TSLA stock - Whenever Tesla Inc (TSLA) Stock Dips, Double Down

Source: Shutterstock

This year is shaping up to be an annus mirabilis for Tesla Inc (NASDAQ:TSLA) investors. TSLA stock is currently sitting on 50% gains so far in 2017 — the shares’ best early performance in a few years.

But it hasn’t been a straight path.

Tesla stock has so far suffered two serious setbacks this year that resulted in 10%-plus corrections, the latest one coming after the automaker’s earnings miss a couple weeks ago. TSLA did manage to stage a quick comeback — probably because there was very little in the way of downgrades from Wall Street.

Investors should always have their eye out for dips like these, though, rare as they are. Here are three key reasons why investors should use future weaknesses in TSLA stock to gain fresh entry points.

#1: Falling Deposits Are No Big Deal

One big reason why Tesla stock immediately sold off post-earnings can be chalked up to concerns that Model 3 was eating up sales of older models, as well as lack of clarity on production timelines.

This came after customer deposits fell 7% during the first quarter, prompting analysts to question whether the upcoming Model 3 rollout was depressing sales of the Model S and Model X.

TSLA stock chart

Musk responded during the company’s conference call by saying:

  • “We have seen some impact of Model S orders as a function of people being confused that Model 3 is the upgrade to Model S.”
  • “We want to be super clear that Model 3 is not version three of our car. Model 3 is essentially a smaller, more affordable version of the Model S with fewer features.”
  • “The Model S will be better than Model 3. As it should be, as it’s a more expensive car.”

Essentially, Musk was saying that people were putting off purchases of the Model S because they erroneously thought Model 3 is a Model S upgrade. It’s hard to buy Musk’s explanation because there is no way anybody in his right mind would imagine that a car that’s only half the price of its immediate predecessor could possibly be more advanced. That was a serious gaffe by the CEO.

It’s more likely that many people who would otherwise have forked nearly $80,000 for a Model S have simply put off their purchases in anticipation of the much cheaper Model 3 going for just $35,000 a pop. This is a common marketing phenomenon that analysts refer to as the Osborne effect, and it happens to even the best of companies, including Apple Inc. (NASDAQ:AAPL).

That said, falling deposits really are no big deal. Tesla still reported a nice 64% bump in production to 25,051 units while sales were up an impressive 134.8% year-over-year to $2.70 billion.

TSLA stock holders need not worry about low Model 3 margins either — if Evercore ISI analyst’s George Galliers’ estimates are within the ballpark. Mr. Galliers reckons Tesla will be able to maintain a 25% gross margin in future years even with Model 3 in full ramp. That compares favorably with the company’s 24.4% overall gross margin reading in the most recent quarter

#2: Model 3 Production Remains on Course

Perhaps the best part of that conference call was Musk’s reassurance regarding Model 3 production timelines.

Musk reiterated that Model 3 remains on track for a July rollout, and sees the company ramping production from 5,000 units per week in 2017 to 10,000 units per week in 2018. Musk further added that Tesla is on track to produce a record 100,000 Model S/Model X units in 2017.

Wall Street can be forgiven for its skepticism regarding Model 3 timelines when you consider Tesla’s past record of missing important milestone dates.

But this is a new Tesla — the company scored a home run this year after it kicked off operations at the Nevada Gigafactory ahead of schedule and unveiled a brand-new Autopilot system to boot, among other key accomplishments.

TSLA has likely learned a lot from past missteps, and there’s good chance the company will surprise skeptics this time around.

#3: New Products Can Offer a Second Wind to TSLA Stock

Tesla has been announcing a series of new exciting products, including an electric semi-truck and a solar roof, that could grow into big catalysts for Tesla stock. Tesla first announced plans for a truck in 2016, but has now reaffirmed that it will unveil a semi-truck in September and a pickup truck in 18-24 months.

A Tesla truck might at first prove to be a tough sell, especially if TSLA is going to price it competitively in a bid to steal some market share from incumbents such as Ford Motor Company’s (NYSE:F) F-150. But that’s a huge addressable market that could pay big dividends for years to come for the EV maker, as I explained here.

Tesla has started taking orders for its solar glass roof, just months after completing the SolarCity buyout. The roof will cost $21.85 per square foot, a good $10 per square foot cheaper than a comparable roof with solar panel installation, and lower than the $24.50 per square foot that Consumer Reports had determined as the ideal price for a solar roof to compete effectively with conventional asphalt roofs.

But perhaps its biggest selling point is that unlike clunky solar panels, it’s actually nice to look at!

Just use future weaknesses to double down on TSLA stock.

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


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/whenever-tesla-inc-tsla-stock-dips-double-down/.

©2024 InvestorPlace Media, LLC