Last June, I discussed several reasons I thought Tesla Inc (NASDAQ:TSLA) would be able to hit $1,000. In the eight months since TSLA stock has lost 10% of its value. It’s going the wrong way.
Although I never stated when I thought TSLA stock would hit $1,000, a great deal of my argument centered around the number of cars and trucks it produces by the end of 2020.
Using $164.3 billion as the market cap TSLA stock has to get to to deliver a $1,000 share price, I argued that 625,000 vehicles produced annually would get it there.
Where Does Tesla Stand on That Front?
The company delivered 29,967 vehicles in Q4 2017 including 1,542 Model 3s. That brings the fiscal 2017 total to around 103,000 or 35% growth over 2016. Most executives would be thrilled about this kind of growth.
But when you’re burning through $2.2 billion in losses annually — Tesla’s net loss was three times the 2016 loss of $773 million with negative free cash flow of $3.5 billion or two-and-a-half times 2016 negative FCF — it’s understandable if TSLA execs including Elon Musk are a little tense these days.
The argument for a $1,000 stock price continues to rest on the very weary shoulders of the Model 3.
The company expects to produce 2,500 weekly by the end of March and 5,000 per week by the end of June. In Q4 2017, it produced 2,425 Model 3s, 1,550 of which were delivered to customers; the rest were in transit to be delivered in the first quarter.
A Model 3 Breakthrough
Tesla produced an average of 187 Model 3s per week in the fourth quarter. In the last seven working days of the quarter, it produced 793 Model 3s, a daily rate of slightly more than 100.
If it continues at this pace, it could produce as many as 2,000 Model 3s in January and 6,000 in Q1 2018, a weekly average of 462 or 18% of its stated goal for the quarter.
That’s not too bad when you consider that 33% of the Model 3s produced in the fourth quarter were made in a little over a week.
Let’s Make an Assumption
To get to 2,500 Model 3s per week, TSLA has to increase its daily production to 500, five times the amount it was able to produce over those last seven working days of Q4 2017.
The naysayers are already shaking their heads knowing full well Tesla won’t be able to do it. Maybe so, but I doubt a lot of people thought it could produce 100 a day and it’s done just that.
Let’s assume it gets halfway to its goal and builds 1,250 per week in the first quarter. On an annualized basis that’s 65,000 Model 3s in 2018.
If it doubles that production in 2019, 2020, and 2021, Tesla hits 625,000 vehicles produced annually, the number I suggested it had to deliver for its stock to get to $1,000.
Bottom Line on TSLA Stock
I continue to be a fan of Elon Musk and TSLA stock.
While I think there’s going to be a lot of bumps and bruises over the next three years, I do believe the company’s going to surprise a lot of people in 2018, which could push its stock above $400.
Do I think you should buy TSLA stock?
I do if you can handle the volatility. It’s the 33rd most shorted on NASDAQ and not for the faint of heart.
However, if you’re going to gamble on a stock, it might as well be Tesla.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.