Tesla, Inc. (NASDAQ:TSLA) is seemingly never far from controversy and never short of detractors, but Tesla stock is up 14% this month and has surged nearly 46% off its recently touched 52-week low.
Elon Musk’s company reports second-quarter results on Wednesday, July 24 and while it is likely Tesla delivers another quarterly loss, if the company can confirm that it well 360,000 to 400,000 electric cars this year (or more) Wall Street is likely to forgive another money-losing quarter.
The California-based company already said second-quarter sales surged, reaching a record and fueling a rebound in Tesla stock.
Additionally, the expected quarterly loss of 41 cents a share is well below the loss of $3.06 a share in the year-ago period, and sales are expected to be $6.5 billion, up from $4 billion in the second quarter of 2018.
Often prone to missteps, Tesla looks like it’s starting to make some of the right moves, including asserting itself in China, arguably the world’s most important electric vehicle market. Data indicate Tesla may be getting its act together in China faster than expected.
“They expect production in the Shanghai plant to start in November, the analysts said. The factory is likely to make 35,000 to 40,000 vehicles by next year, and around 60,000 in 2021,” MarketWatch reports, citing Morgan Stanley.
Growth and Tesla Stock
As has been widely noted, the electric vehicle industry is the future of the automotive and growing at a rapid pace, perhaps more rapid than many analysts anticipated.
“Electric vehicles (EVs) generally, and Tesla specifically, seem to be breaking the ‘s-curve’ adoption mold,” said ARK Investment Management. “According to our research, EV growth is stealing the march from the traditional auto industry, and Tesla is leading the charge, so to speak.”
ARK, an issuer of active and passive exchange traded funds, is a noted Tesla bull and features Tesla stock among the top holdings in some of its active ETFs. So yes, ARK has skin in the Tesla stock game, but data do confirm the notion that EV adoption is picking up faster than originally forecast.
“The rapid growth of the EV market has caught many analysts flat-footed…Four years ago, the Energy Industry Administration (EIA) among other forecasting agencies estimated that EV sales would total a few hundred thousand units in the early 2020s. After they hit 1.45 million units in 2018, the same agencies now forecast that EV sales will increase to roughly 4-4.5 million in 2023, suggesting that their growth will decelerate from 79% last year to 25% at an annual rate during the next five years. Based on Wright’s Law, ARK’s forecast for EV sales in 2023 is 26 million units, roughly six-fold higher than the consensus estimate, with growth compounding at at a 78% annual rate.”
Interestingly, Tesla’s share of the EV market has been mostly steady, checking in at 17% last year, up from 13% in 2017 and slightly higher than the 16% seen from 2014 through 2016.
Part of the reason for that is Tesla is classified as a luxury carmaker. The cheapest car the company currently offers is around $40,000.
Bottom Line on Tesla Stock
Don’t scoff at luxury or focusing on a market segment’s high end. Making aspirational products can, when properly executed, be a major driver of shareholder returns. Prime example: Apple Inc. (NASDAQ:AAPL).
“ARK expects Tesla to follow in Apple’s footsteps, losing share as it continues to dominate the high end of the market,” said ARK. “In our bear case, during the next five years Tesla could lose two-thirds of its market share, dropping from 17% share to 6%, while its sales increase 47% at a compound annual rate from 245,000 in 2018 to 1.7 million in 2023.”
Fun fact: Tesla’s Model 3 was the top selling luxury car in the U.S. last year. In other words, the catalyst for Tesla stock is not EV prices coming to parity with traditional cars, that is of little consequence to Tesla. To drive Tesla stock higher, the company needs to execute at the market’s upper echelon and that means doing with so many of the problems that buyers complain about on social media (software issues, paint problems, slack service and more).
Todd Shriber does not own any of the aforementioned securities.