I gave what I thought was an honest analysis of what has to go right for TSLA to hit one million vehicles produced annually by 2020; should the company do that, hitting $1,000 is anything but impossible—but it has to get to a million.
Nearing the end of October, Tesla’s got 38 months to hit that production number. To hit $1,000, TSLA stock has to grow at 43% compounded annually over the next three years; a 48% return in 2018 would get it to $500. A 48% decline would drag it down to $176, but I’ve rounded it up to $200 for simplicity’s sake.
Which does TSLA stock hit in 2018? $200 or $500?
David Einhorn Says $200 for TSLA Stock
The heavy hitter wrote a very unflattering letter to clients Oct. 24 about Tesla. Of course, what’s Einhorn going to say when he’s got a significant short position in the company’s stock.
In August I acknowledged Einhorn’s short, concluding my article by suggesting that Tesla’s stock would be overvalued if it doesn’t hit monthly production of 20,000 Model 3s by the end of the year.
“The Wall Street Journal reported that the much-hyped Model 3 was indeed in production — by hand,” wrote InvestorPlace’s Lawrence Meyers discussing Tesla’s instance valuation recently. “Another source even says that the Model 3 is still being developed. Wasn’t this the car Musk said would be delivered in 2016?”
That doesn’t sound like a company ready to produce 20,000 vehicles per anytime soon, does it?
Einhorn certainly doesn’t think so.
“Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value,” wrote Einhorn in his letter to clients. “What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive…?”
That describes Tesla to a tee.
Unfortunately, David, the value placed on any stock is merely a number both the buyer and seller can agree to. One man’s gold is another man’s garbage; Beauty is in the eye of the beholder, yadda, yadda, yadda.
Bottom line: Einhorn might be right that TSLA stock isn’t worth the paper it’s written on but until a majority of investors come to this conclusion, TSLA will continue to trend higher.
Romit Shah Says $500 for TSLA Stock
Who is Romit Shah, you ask?
He is Tesla’s most significant bull who only initiated coverage on the company in early October with a buy rating and a $500 12-month target price; the highest price forecast of 19 firms covering TSLA stock.
Why is Shah so gung-ho?
“I see Tesla as a technology company whose biggest asset is manufacturing and the end products happen to be electric vehicles and energy storage. You’ve got a company with exponential growth,” Shah said on CNBC’s Power Lunch Oct. 4. “When we look at Tesla and where it is trading at today, we think there is a lot of room for the [valuation] multiple to expand.”
Trading at eight times sales [TSLA stock] compared to less one for all the major car manufacturers, it’s a real show of confidence in Elon Musk and the rest of the Tesla team.
Shah goes on to say that the Tesla Model 3 is heads-and-shoulders above the other electric vehicle producers regarding cost and range — $140 per mile of range versus $236 per mile for competition — suggesting Tesla shareholders will be the biggest winners in 10-20 years.
Who Is Right?
That’s a darn good question.
On the one hand, we have a billionaire [Einhorn] who is a billionaire because he’s right more often than he’s wrong. On the other, we have an analyst who is late to the party yet is willing to put his stamp on TSLA stock even as the Model 3 is causing the company fits.
That takes guts.
So, here’s what I think.
The Model 3’s production difficulties are caused in part by the car’s steel body, as opposed to aluminum in the Tesla S, which has meant severely slowing the assembly line to deal with poor welds.
Some experts suggest Tesla should have caught this before going into production which begs the question whether it’s got enough car smarts to fix the problem permanently.
It has got to fix this and get to 20,000 vehicles per month if it wants to hit $500 in 2018. Right now I’d say the odds are less than 50%, but you can never count Elon Musk out.
Long term, I still believe in Musk’s vision for the future. If you’re long, I would continue to hold, but you might want to temper your expectations for 2018.
If you’re short, your best hope is to hit the end of 2018 without a 20,000 vehicle month.
Either way, it’s going to be an exciting year for Tesla investors.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.