A shift in sentiment has reversed the downtrend of the shares of Tesla, Inc. (NASDAQ: TSLA). Tesla stock has been boosted by rumors that TSLA had ramped up its production to 1,000 cars a day.
The owners of Tesla stock will look to get confirmation of that data point when TSLA reports its second- quarter results on July 24 after the market closes. In Q1, investors lost confidence on TSLA when its production came in below analysts’ consensus outlook.
The Reported Increase in Model 3 Production Is Questionable
On June 14, electrek cited new incentives to employees and the company’s goal of delivering 33,000 to 36,000 vehicles in North America this month as reasons to anticipate an average of 1,000 deliveries per day in North America in June. Additionally, buyers are incentivized to push TSLA to deliver their vehicles before the federal tax-credit for them drops by 50% on July 1.
Tesla stock is up about 17% in the last month, bringing TSLA stock well above the $200 level. That suggests that the market believes Tesla has raised its production to meet an increase in demand for its vehicles. As a result, TSLA could continue to rebound ahead of its earnings report which is slated to be unveiled on July 24.
Related Investments
Value investors will steer clear of Tesla stock because its price/sales multiples are higher than those of its competitors, including General Motors (NYSE: GM) and Ford Motor Company (NYSE: F). TSLA trades at 1.76 times its sales, compared to 0.25 for Ford and 0.36 times for GM. This implies that markets are highly optimistic that Tesla’s unit production will increase at a faster pace than that of the traditional car makers. It also suggests markets expect the sales of gas-powered vehicles by GM and Ford will decline.
The market is not giving a premium to GM stock to reflect GM’s electric-vehicle ambitions, even though the company is reportedly developing an electric pickup truck. F has a solid lineup of hybrid and electric vehicles coming to the market over the next few years. Yet most investors are willing to ignore Ford’s future growth prospects in the EV space and aren’t being enticed by the stock’s 6% dividend yield.
And don’t forget Toyota Motor (NYSE: TM), either. The stock rallied 6% in the last month. Markets may like the company’s unveiling of an entirely new all-electric set of vehicles. Toyota plans to launch them globally by 2025.
Q2 Expectations
Analysts, on average, expect TSLA to lose 56 cents per share on revenue of $6.19 billion in Q2. For Q1, the company reported revenue of $4.54 billion but lost $2.90 per share. Instead of addressing the growing losses, CEO Elon Musk touted his ambitions of having 1 million of Tesla’s self-driving Robo taxies on the road by the end of 2020.
Still, Tesla said its Model 3 was the best-selling premium car in the U.S.; it outsold the runner-up by almost 60%. The company has already announced that the driving range of the Model S will be increased. It has also said that other improvements will be made to the Model 3 and that the Model X will also be enhanced. TSLA isn’t likely to provide any additional, significant production updates when it reports its Q2 results next month.
When analyzing the Q2 results, investors will hone in on sales of the standard- range Model 3. They will also look for signs of an uptick in sales of Model S and Model X after the product refreshes announced last quarter. If TSLA’s revenue does not meet expectations and its unit sales stalled, Tesla stock could face renewed selling pressure. Investors will only be willing to continue rewarding the stock with high valuations if the company’s sales momentum did not stall for a second straight quarter.
Valuation and the Bottom Line on Tesla Stock
Even though 11 of the 25 analysts covering Tesla stock have a “sell” rating on the shares, analysts’ overall, average price target is still about $275, according to Tipranks. The shares will only reach that price target in the near-term if the company’s production doesn’t slow and it doesn’t accumulate inventory of unsold units. Its standard Model 3 and product enhancements must also resonate with its fans. If the changes and the incentives led to higher sales, bulls will regain control of Tesla stock.
As of this writing, the author owns shares of Ford Motor Company.
