The Bears Are Wrong on Tesla Stock
With the recent news of a famous hedge fund manager shorting Tesla Motors Inc (NASDAQ:TSLA) stock, investors might have gotten a bit worried. But should you follow and turn bearish on Tesla stock, too? Most definitely not.
Let me explain…
Tesla stock bears often argue that Tesla is just an automaker, so it should trade at automakers’ valuations. At the same time, they say that companies like General Motors Company (NYSE:GM) have also been building electric cars. Why should Tesla stock get special treatment?
Well, the thing is that it’s all about supply and demand for both the company’s products and TSLA shares.
Tesla’s enormous fan base needs little introduction. The most notable event that proved the brand’s appeal was the “Model 3” unveiling a couple of months ago. In the first week of taking deposits, Tesla received more than 325,000 reservations on the Model 3. (Source: “Tesla First Quarter 2016 Update,” Tesla Motors Inc, May 4, 2016.)
By mid-April, reports suggested that pre-orders of the Model 3 were approaching 400,000.
What’s more impressive is that Tesla achieved this without spending a penny on advertising or paid endorsements.
Sure, other carmakers also have some decent offerings in the electric vehicle (EV) segment. But when was the last time you saw people lining up for a Chevrolet “Volt” or a Nissan “Leaf”?
The same goes for Tesla stock. When a company goes from delivering its first car in 2008 to aiming to deliver 500,000 vehicles in 2018, would investors cheer for it? Absolutely, since its initial public offering (IPO) back in 2010, TSLA stock has skyrocketed 1,313%!
Wall Street Likes Tesla Stock
When a stock makes a massive move, it’s going to attract some short interest. Most recently, some high-profile short sellers are thinking of taking down Tesla stock. But it probably won’t be that easy, especially when you have some of the biggest Wall Street firms predicting massive upsides.
Last month, Goldman Sachs Group Inc (NYSE:GS) upgraded Tesla stock from “Neutral” to “Buy.” At the same time, it gave Tesla a six-month price target of $250.00. (Source: “Goldman Upgrades Tesla, Saying ‘Putting in Our Reservation for the Model 3’,” CNBC, May 18, 2016.)
Since then, TSLA shares have climbed 9.07% from $204.66 to $223.23 apiece.
If you think Goldman made a bold call, this will surprise you even more. Among the biggest players on Wall Street, one has given a much higher price target on TSLA stock.
The bank was Morgan Stanley (NYSE:MS). The analyst was Adam Jonas.
In a note to investors last summer, Jonas increased the price target on Tesla stock from $280.00 to a whopping $465.00. At that time, the price target represented an over 90% upside potential. (Source: “Morgan Stanley Massively Hikes Price Target on Tesla, Says Stock Could Almost Double,” Bloomberg, August 17, 2016.)
The analyst described something he called “Tesla Mobility, an app-based, on-demand mobility service.” (Source: Ibid.) Although other tech giants are also working on similar projects, Jonas believed that Tesla is well positioned to win: “Tesla is uniquely positioned, in our view, to solve the biggest flaw in the auto industry, <4% utilization, via an app-based, on-demand mobility service.” (Source: Ibid.)
Most recently, Tesla confirmed that it has closed its new public stock offering. The company received net proceeds of “approximately $1.7 billion, after deducting underwriting discounts and commissions and estimated offering expenses.” (Source: “Tesla Closed Its Stock Offering with $1.7 Billion in Net Proceeds to Finance the Model 3 Program,” Electrek, May 25, 2016.)
The bulk of the proceeds would be used to ramp up production of its mass market car—the Model 3. Earlier last month, the company accelerated its 500,000 build plan by two years from 2020 to 2018.
The Bottom Line on TSLA Stock
To a certain extent, every startup is telling a story. While Tesla is no longer a startup, its storytelling has been very convincing. With another $1.7 billion invested in the production of the hottest EVs on the market, investors are eager to see what Elon Musk can bring to the world next.