Tesla Stock Outlook 2016
Tesla Motors, Inc. (NASDAQ:TSLA) bids farewell to a stellar year for the company, where it managed to achieve a number of milestones—the launch of the “Powerwall” and the announcement of its “Model X” being the two most significant. TSLA stock may have had a neat six-percent year-to-date run, but I’m seeing 2016 to be a much bigger year for TSLA stock.
Here are five reasons why I believe so.
1. Model X Is On the Way
The naysayers may decry the new Tesla all they want, but the Model X is coming! After repeated delays, the company is now ramping up production for the new crossover-SUV model. The good news is that the deliveries for the high-end Model X are beginning before year-end. (Source: “Tesla Model X “Every Other Car Off The Line” Now,” EV Obsession, December 18, 2015.)
Exclusive footage of Tesla’s factory shows the company’s assembly line working on the Model X body. The weekly production target is now being set at 800 to 1,000 units per week, with the first deliveries beginning in the coming weeks. (Source: “Exclusive! – Fremont Tesla factory visit,” The Car Guide YouTube channel, December 13, 2015.)
It remains to be seen how many of the new vehicles will be delivered through the new year but rest assured, the company’s policy to introduce lower and lower price points for each new model will drive demand from prospects who couldn’t afford the earlier, more expensive “Model S” or “Roadster” Tesla vehicles. Also, the new SUV will open Tesla’s doors to another type of buyer who’s less interested in buying sedans.
2. Solar Subsidies Big News for Powerwall
The automaker-cum-battery company may have been struggling with red bottom-line figures for its car business but its battery business will likely trigger a green revolution for its bottom line in the coming years from its recent launch of the Powerwall.
The most promising news for the company came last week when the government unanimously passed the bill on extending investment tax credits (ITC) for solar companies. Not only does it bode well for SolarCity—the solar energy company that Elon Musk chairs—but it’s also good news for Tesla.
Tesla’s chargeable battery, the Powerwall, which allows Tesla owners to switch to backup storage during peak hours, is a complementary product to SolarCity’s solar installations. The proposed tax credits through the next three years, that will help SolarCity to step up its expansionary program and drive higher demand for solar energy, are a win-win case for both companies.
Where SolarCity will provide the solar panels to residential and commercial customers, Tesla’s Powerwall and Powerpack will provide the complementary support to store energy.
3. Powerwall Goes International
And if that’s not enough, the Powerwall is now going international for the first time. The storage battery’s first international market is set to be Australia, where it is about to open its registration for orders. (Source: “Tesla Powerwall: Christmas Comes Early in Australia for Tesla Motors Inc Fans,” Bidness ETC, December 20, 2015.) The deliveries will start as early as next year.
And let’s not forget that locally, the company has just scored its first utility partner in Vermont, Green Mountain Power, which has already placed a big order for Powerwall deliveries for 2016. (Source: “Vermont utility says it will be the first to install Tesla powerwalls in the US,” Ars Technica, December 7, 2015.)
4. The Gigafactory Is Now a Reality
The next year marks the completion year of Tesla’s “Gigafactory,” when the biggest lithium-ion battery factory becomes fully operational. The Nevada-based Gigafactory is, by itself, expected to beat the total global lithium-ion battery production, but Musk has something bigger planned out.
Rumor has it that the Tesla CEO is now in talks with Germany to open a similar factory in the biggest market for solar energy. Previously, he has also hinted at a Gigafactory for the second-biggest country in the world, India, where a energy shortfall is driving demand for renewable alternatives. (Source: “Tesla in Talks With Germany Over Possible Battery Factory,” Bloomberg, November 17, 2015.)
5. Tesla’s ADAS Will Return to Profitability
Tesla is not a traditional automaker; it’s a technology automobile company that invests in battery technology and machine learning software for its cars. And when it comes to tech, the growing interest of automakers in Advanced Driver Assistance Systems (ADAS) is now being touted to be the future for the auto industry.
Alphabet Inc (NASDAQ:GOOG), aka Google, has been the most successful in pioneering the technology and currently owns the most advanced version of driverless or fully autonomous driving technology. Google currently has the most cars licensed under the technology and has just announced a joint venture with Ford to take this technology to the masses. However, Tesla isn’t far behind!
Tesla, which had massive success with its autopilot program, has the second-highest number of cars that are licensed to run on the technology and Tesla’s CEO has plans to bring the technology to the commercial market in the next two years. (Source: “Elon Musk Says Tesla Vehicles Will Drive Themselves in Two Years,” Fortune, December 21, 2015.)
Now, this software, when perfected, could be a strong contributor to the company’s profits. It is estimated that Tesla currently enjoys a massive 95% gross margins on its self-driving software. The software will not only be big for its own cars, but it will also allow the company to sell the software to other automakers for royalties. (Source: “Mobileye Rebounds as Raymond James Defends Against Hotz Threat,” Barron’s, December 17, 2015.)
The Bottom Line on TSLA Stock
The last few years have been tough for the company, but Elon Musk’s resilience has kept it afloat. The company has largely delivered on its promises over the years and the future looks even more promising. All these indicators, in particular, bear a positive signal for TSLA stock’s future.