The global effects of the novel coronavirus had a drastic impact on the car industry as factories around the world were forced to shut down. A stock market dip coupled with low sales affected almost every major car manufacturer. But one auto giant that emerged relatively unscathed amidst all this chaos is Tesla (NASDAQ:TSLA) and TSLA stock.
Specifically, the bombastic head of the company: Elon Musk. Although the company had its fair share of critics this year (including its own CEO), it has remained a strong asset and is unlikely to fade into the abyss anytime soon.
Keep the Factories Open
Earlier last month, Elon Musk infamously rallied against the factory shutdown order in Alameda during a conference call to discuss Q1 results. Eventually, Musk defied the shutdown order and reopened Tesla’s Freemont plant.
After a heated battle with authorities and a threat to shut down the plant for good, the local government quickly gave in and sanctioned ongoing operations at the plant last week. This helped fuel the TSLA stock price, which was otherwise defined by high periods of volatility.
The value of Tesla’s stocks nearly doubled in 2020 and hit a high of $968.99 in early February. After the initial reactions to the pandemic, prices took a deep dive to $350.51. However, Tesla has made a major comeback since then with a relatively stable 21-day moving average.
TSLA stock prices fell by 2.5% at $799.17, but rebounded last week with an aggressive entry at $800. Tesla’s share price is at $816.88 as of this writing. Given that the company made major news headlines with the factory shutdown fiasco, the stock prices prove that investors remain confident in Tesla’s capabilities despite dwindling sales in the auto industry.
Chinese Sales Plummet
Before the coronavirus pandemic brought life as we know it to a halt, Tesla was set to make some big moves in the industry with its new facility in Shanghai. However, the pandemic put a wrench in the company’s plans and obliterated demand for cars. Although initial lockdowns have since been lifted in China, Tesla’s car sales still struggle to pick up.
In April, Tesla’s car registrations in China saw a dramatic decrease to just 4,633 units from 12,709 in March. While many assumed that a 64% decrease would do some damage to the stock price, it’s worth noting that this region only makes up a small percentage of sales. When assessing Tesla’s stock price, investors place a greater value on the company’s ability to increase production to meet demand.
If last weeks’ order-defying factory reopening say anything, it’s that bullish investors were right to believe in Tesla’s production capabilities.
Production Brought Back to Life
While production hit a slow stride in March and April, analysts predict a greater trajectory in May and June. Tesla is well-positioned to deliver the goods as production in Fremont and Shanghai are back on track this week.
Initial production expectations were set at 70,000 units, which are lower than first-quarter numbers. But with the factories back in full-swing, this value will be closer to 90,000. However, TSLA stock investors are all about beating the estimates and hope to see if Tesla can still reach its pre-COVID-19 goal of 400,000 units in 2020. Many continue to remain bullish on Tesla’s stock given the tenacity of its CEO.
TSLA Stock Entry into the S&P500
In addition to lofty sales goals, Tesla also hopes to qualify for inclusion in the S&P500 index. An underlying criteria to be listed on this index is to have a net profit in four quarters. Tesla was in the running to qualify until Q2 earnings in 2019 saw a dramatic loss of $408 million.
With pressure mounting to hit a profit in Q2 of 2020, Elon Musk fought to keep the factories open in the hopes to squeeze out a profit this quarter. Analysts initially predicted a $387 million loss in Q2, but with factories up and running, Tesla has six weeks to prove their worth to make it into the S&P 500.
The Bottom Line on TSLA Stock
Despite an initial plunge in the stock price, analysts predict that Tesla’s balance sheet remains in a position to weather the COVID-19 storm. As production ramps up with a potential for increased growth in the Chinese market, Tesla is likely to put up some big numbers next quarter.
Musk has also touted a Battery Day event that will feature all the latest developments in their electric vehicles, which will bring down costs and ultimately boost demand. Tesla stock is worth the investment because even if the current numbers show room for improvement, the long-term prospects are fundamentally robust.
As of this writing, Divya Premkumar did not hold a position in any of the aforementioned securities.
