Tesla (NASDAQ:TSLA) stock had a definitive moment of reckoning. In fact “month of reckoning” may be more appropriate to describe Tesla stock.
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In May shares were down a precipitous 25 percent. Since that bottoming out, shares have rebounded nicely with a better-than-expected second quarter.
TSLA shares are still down 14 percent for the year, but certain fundamentals do seem to be headed in the right direction. In particular, progress in China seems like it could be a major catalyst for TSLA stock in the coming quarter or two.
After the May selloff, advances in the Chinese market, and improvements in Model 3 sales, my bearish attitude toward the company is beginning to shift.
China and Tesla Stock
Wall Street analysts who just got back from China indicated that “Tesla could open its Shanghai Gigafactory even sooner than expected.”
After much speculation over the Gigafactory and sarcasm on Twitter, a report from Morgan Stanley (NYSE:MS) showed that TSLAQ folks might have to eat their words.
Analysts told clients that Tesla could open its Chinese factory sooner than expected. Their research note went on to give their feedback from a visit to local suppliers.
“If they’re [the suppliers] right, Tesla may be able to ramp China production faster than we have currently anticipated in our model.”
Though Morgan Stanley left their rating on the stock unchanged, the note undeniably skews bullish with the China team saying, “We expect Tesla will be the leading luxury EV player in China.”
A cheaper, domestically produced model has the potential to “unlock pent up demand.”
The China factor is not being fully priced in at current levels.
Model 3 Catching On
The Model 3 is another potential catalyst for TSLA. Initially, there were a lot of issues about shoddy production and mechanical problems with the vehicle. However, sales for the lower-cost model have been good relative to other competitors.
Over the past four quarters, the Model 3 has been outselling the Camry, Accord, and Civic by revenue. In terms of units sold, the Model 3 has been outselling all of its competitors combined, including the Mercedes C-Class and BMW 3-Series.
The numbers look pretty good so far, and given the market potential based on the company’s analysis of trade-ins, there is still a lot of market share the Model 3 has the opportunity to take. The global market for non-premium vehicles in the Camry/Accord price range alone amounts to tens of million cars.
It’s not a guarantee that Tesla gets the lion’s share of those trade-ins, but it’s certainly a possibility given how Model 3 sales have been trending over the past year.
Final Word on Tesla Stock
That underlying improvement in the international business in addition to a bit of relief from the relentless pressure of bears throughout the year could see TSLA stock back at least at breakeven performance.
Overall, CEO Elon Musk seems to be spending less time fending off TSLA haters on Twitter (NYSE:TWTR) and more time on the strategic buildout of the business. His charisma and vision are still important marketing assets of the Company, however intangible they may be, but there is a time for loud proclamations and a time for delivering on those proclamations.
After a brutal May, it seems Musk saw that it was time to refocus on execution and delivering on milestones, and he’s doing just that. Better things are ahead for TSLA shareholders.
As of this writing, Luce Emerson did not own any of the aforementioned securities.
