One thing best describes Tesla (NASDAQ:TSLA) stock’s daily moves in the markets: roller coaster. Tesla stock is soaring one day and falling off the cliff the next. Its 52-week price range has been $244.59 (April 2, 2018) – $ 387.46 (Aug. 7, 2018). Unless TSLA releases very strong fundamental numbers when it reports earnings on Feb. 6, I expect Tesla stock to continue this range-bound trading.
Over the past year, the TSLA stock price has been a battleground between two camps: investors and traders. Investors have been wondering whether the company will be able to work through various production issues and margin worries as it becomes a full-fledged car manufacturer. Bulls point out how well TSLA stock has held up since October when all other tech heavyweights have plunged in a free fall. Bears are happy to point out that the level of short-selling in the stock is a reflection of sentiment and fundamental worries.
Traders, on the other hand, watch the unpredictable mood swings and Twitter (NASDAQ:TWTR) rants of CEO Elon Musk as they trade Tesla stock from one end of the upper price range of about $285 to the other end at $250. In other words, in 2018, the public relations noise surrounding TSLA has taken over the story of its fundamentals.
TSLA’s Fundamental Story Is Improving By the Quarter
Recently Tesla has released impressive production and delivery figures for 2018 Q4. The company produced 86,555 vehicles and delivered 90,700, both numbers are 8% higher than the Q3 data. Wall Street also positively noted that Tesla’s deliveries in 2018 were almost at the level of total shipments in all previous years combined.
These strong numbers followed through the growth trend in the Q3 earnings report of October 2018, when Tesla stock investors cheered the 50% increase in vehicle production and a 106% increase in sales — leading to the highest quarterly profit in the history of the company. TSLA also reported improvements to delivery rates as it delivered twice as many cars in Q3 than it did in Q2.
These impressive numbers are mostly thanks to Model 3, whose production is now transforming Tesla into a mass-market car producer. This is a big reality and sentiment change from the start of 2018 when investors had worried about the production numbers regarding its latest vehicle, i.e., Model 3.
Based on its strong production numbers, I expect Tesla’s profitability to grow in 2019 and beyond, with orders coming not only from North America, but also from China and Europe.
What Could Derail Tesla’s Growth?
If 2019 also turns out to be a year when Tesla’s CEO loses his focus and displays unpredictable behavior, many analysts and TSLA stock investors may end up throwing in the towel in frustration until the company works through its top management issues.
Moreover, if Tesla decides to change its offerings, including vehicle types or prices, on a whim, then the Tesla stock price may take a hit due to potential uncertainty in sales numbers and expected earnings. For example, in early January, Musk announced that the company would discontinue the 75kWh battery pack, a move that translates into steep price increases for both Model S and Model X, the company’s two luxury cars. Although this change may end up keeping the Model 3 more affordable and help its sales, analysts are worried about the effect of such abrupt product and pricing decisions.
If TSLA does not become cashflow positive within the year, it may find itself in dire straits as it has payments due in the years ahead to settle convertible bonds. In early March, it has to pay out close to $1 billion in cash, where the equity-conversion price is $359.88 per share. In other words, the company wants to see the Tesla stock price above $360, so that more bondholders will decide to convert the bond into stock.
Tesla’s growth story will also depend on how the company will continue to differentiate itself amid the rising competition from other all-electric vehicles, produced by established car manufacturers globally. For example, Ford (NYSE:F) has recently joined the ranks of companies that are entering this segment to offer a wide range of electric cars in a few years.
Furthermore, if the U.S.-China trade tensions continue well into the year, TSLA sales in China may slump further and hinder the bottom line. The latest Chinese trade data is also worrying many analysts on both sides of the Pacific as they wonder whether China is entering into recession.
Finally, if you are an investor looking to buy in to Tesla stock because of Elon Musk’s claims that the company will begin production in Shanghai in about a year, I would urge caution for now. Many analysts believe it will be a lot longer before TSLA can actually begin production at the Shanghai Gigafactory. Unless the company resolves the main issue, i.e., the source of funding, it would be overly optimistic to expect big production news out of China.
The Bottom Line on Tesla Stock
I expect TSLA stock’s range to stay intact in the near future unless the company reports a robust earnings report in early February. Yet, eventually, fundamental catalysts will drive the Tesla share price higher, and the stock price will break over $400.
In the meantime, patient investors who believe in the TSLA story may see any price drip toward the $250 range as an opportunity to get long the stock and ride out the daily volatility. In two to three years, I expect theses investors to be rewarded handsomely.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
