The Upside for Tesla Stock
This hasn’t been a great year for Tesla Motors, Inc. (NASDAQ:TSLA), but things may be looking up for TSLA stock in 2016. It looks like a lot of Tesla’s investments could bear fruit in the coming months, meaning that both earnings and Tesla stock could jump. But hey, don’t just take my word.
Analysts from Credit Suisse recently confirmed that Tesla is on track to meet their estimated production numbers in the fourth quarter of 2015. That’s excellent news, because Tesla really needs a win right now.
TSLA stock took a hit several months ago when the company tried to scale back expectations of how many cars would be delivered. The company went from “55,000 expected Model X deliveries” to “50,000 to 55,000” to “closer to 50,000.” Markets didn’t take too kindly to the reduced volume, especially since the “Model X” deliveries were already behind schedule.
Tesla’s brand sustained further damage when Consumer Reports downgraded the company’s luxury sedan, the “Model S.” The new vehicle had been recalled for a series of minor fixes, hence the downgrade. Tesla bears loved it, but they clearly didn’t read the whole report. If they had, they’d have seen that 97% of customers still loved their Model S and would buy it again in a heartbeat. (Source: “Tesla Reliability Doesn’t Match Its High Performance,” Consumer Reports, October 20, 2015.)
TSLA Stock Hinges on Earnings Growth
Recalls are a common occurrence in the automobile industry, but Tesla’s reaction was far superior to its competitors. According to a survey by Consumer Reports, “Almost every survey respondent made note of Tesla’s rapid response and repair time, despite the lack of a traditional dealer service network.” (Source: Ibid.)
Also, an earlier review by the same publication gave the Tesla Model S a rating of 103 out of 100. This, of course, sent the Tesla bears into a frenzy. Many analysts think the subsequent downgrade was a mea culpa that would soothe ruffled feathers. (Source: “Tesla Model S P85D Earns Top Road Test Score,” Consumer Reports, last updated October 20, 2015.)
Regardless of why the downgrade happened, it should have no lasting effect on Tesla stock. The company dealt with its recall quickly and efficiently. And now the Model X numbers are back on track, meaning Tesla has already course corrected.
But the best part about the updated Model X numbers isn’t getting too much press. Tesla is now offering an entry-level price of $80,000, which is far below the “Signature Series” price of $132,000. (Source: “Tesla’s Most Affordable Model X SUV Priced At $80,000, Delivery Dates Given,” Forbes, November 24, 2015.)
Tesla Stock Could Breakout in 2016
I can’t overstate how important the pricing information is to Tesla’s future success. The company’s future prospects depend on its ability to produce an affordable electric car.
Tesla’s top-down pricing strategy has been brilliant. Elon Musk understood that Tesla could only survive in its early years by making cars that provided higher-margin sales. That meant building sports cars and luxury sedans. Using the margins from those high-end cars, Tesla could work its way down the price ladder, but an affordable electric car was always the target.
Tesla is unveiling its “Model 3” edition next year in that very same spirit. It is estimated to start at $35,000, which is a huge step forward for the company. A lot of people were skeptical about whether or not Tesla could actually stick to that target price, but those same TSLA bears also didn’t think the Model X could sell for $80,000.
That’s 1-0 for Elon Musk.