Shares of Tesla Inc (NASDAQ:TSLA) are going parabolic, surging to new record highs on Thursday and up some 20% over the past few weeks. There’s been no specific catalyst for the move, just a growing sense of upward momentum and red-hot expectations for the start of Model 3 production in July.
After years of promises regarding the Model 3 from CEO Elon Musk — including a very aggressive production ramp-up schedule — we’re nearly to “put up or shut up” time.
Whether TSLA can deliver on its “affordable” EV will determine whether investors will continue to value the company more highly than Ford Motor Company (NYSE:F) or General Motors Company (NYSE:GM), despite Tesla’s lack of profitability and tiny fraction of the production output of F and GM.
Only a few months ago, Goldman Sachs analyst David Tamberrino tried to bring some reason into the picture when he cut the stock to “sell” and lowered his price target to $185.
While acknowledging the company’s leadership role relative to more established automakers (in terms of electric vehicle technology, EV adoption with customers and battery manufacturing), his concerns focused on near-term operational execution of the Model 3 launch, the unproven solar business and the rapid free cash burn rate (which is expected to necessitate a capital rate before the fourth quarter of the year).
The capital expenditure needed to get the Model 3 produced — and ramp production of the existing Model S and Model X as expected — totals $3 billion by Tamberrino’s estimate.
He also identifies and charts the “Tesla hype cycle” shown below, demonstrating how TSLA has traded in a range between $180 and $280 over the last few years. Tamberrino attributes this to the ups and downs surrounding new products, followed by lamentation on delays, lowered delivery targets and capital raises.
Obviously, Tesla’s hype cycle has been broken with shares now pushing to $370 and beyond.
Yet, I believe the confidence has gone too far and Tamberrino’s concerns remain valid. Investors would do well to consider lightening their positions, before the Model 3 rolls off the assembly line to a “sell the news” dynamic.
The delivery expectations on Wall Street are simply untenable. The company delivered 22,200 vehicles in the fourth quarter and 76,230 for 2016 — missing expectations.
Somehow, the Street expects the company to deliver 1,000,000 vehicles per year by 2020 despite a still burgeoning EV charging network. In fact, the company hasn’t even completed a beta prototype of the Model 3 as of its previous quarterly statement. Not to mention that auto sales in general are cooling off.
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.