Tesla Motors Inc (NASDAQ:TSLA) stock jumped about five percent on Monday following the company’s announcement of its best-ever quarterly sales.
TSLA stock has been on a roller coaster ride since last month, as the continuous news flow evoked sharp reactions from investors. Tesla stock jumped to $213.70 at the close of the session after the company reported that it has delivered 70% more cars in the third quarter as compared to the second quarter.
Tesla Motors Inc announced it had delivered approximately 24,500 vehicles in Q3, of which 15,800 were “Model S” and 8,700 were “Model X.” Also, about 5,500 vehicles were in transit to customers at the end of the quarter. (Source: “Tesla Q3 2016 Production and Deliveries,” Tesla Motors Inc, October 2, 2016.)
Tesla Motors maintained the guidance of 50,000 vehicles for the second half of 2016. It was extremely important for the company to meet its Q3 target, as Tesla plans to raise additional cash in Q4 to complete the “Model 3” factory as well as the “Gigafactory” that will supply batteries to Tesla vehicles.
What is of concern to investors right now is the financial health of the company. Analysts have already expressed concerns amid reports that discounts are being offered on Tesla cars, which would affect profit margins. However, Tesla Motors Inc CEO Elon Musk allayed such fears, saying the company does not offer discounts on new cars, but only on floor models. Even if we believe Musk, the company’s financials are always a cause for concern, and those financials keep hitting the TSLA stock price every now and then.
Tesla has been posting losses since early 2014, and it is facing a cash crunch at present, following its enormous growth and expansion plans. The situation has been made worse by the proposed acquisition of the loss-making SolarCity Corp (NASDAQ:SCTY). Tesla stock had witnessed heavy selling after these reports, as investors saw this as Elon Musk’s way to bail out SolarCity.
Can The Competition Overtake Tesla Motors?
TSLA stock has also been pounded on the back of fears that other established automakers will release their electric car models sooner rather than later. A good example was when General Motors Company (NYSE:GM) revealed its “Bolt” electric vehicle, which boasted of a higher driving range than Tesla vehicles. It is said that these longstanding auto giants have the resources and infrastructure to beat Tesla in electric car category.
But do they?
There are clear advantages that Tesla has that will keep it ahead in the race for a long time. Tesla Motors Inc does not sell its cars through franchised dealerships. This makes the company the owner of its own distribution channels. This is what made Tesla file a lawsuit against the state of Michigan to reverse a law that prevents Tesla from opening a company-owned dealership in the state.
Tesla is building its Gigafactory, which is another example of how the electric carmaker wants to own the production of its batteries which are so important to its cars. This will help reduce the cost of its batteries and energy storage products.
By eliminating middlemen, Tesla wants to reduce its costs as well as strengthen its competitive advantage. Rivaling Tesla’s “Supercharger” car-charging network is another big barrier that automakers will find hard to overcome. Building electric vehicle charging infrastructure takes time. It is highly probable that few of the electric vehicle players may even use the Tesla charging station network for a fee. Tesla is already working on delivering its largest private Supercharger order. (Source: “Tesla to deliver its largest privately-owned Supercharger station to a taxi fleet in Montreal,” Electrek, October 3, 2016.)
This is a huge money-making opportunity for the company. Tesla is focused on building a cash-generating model through such orders, and it talks about building Gigafactories in the growing Asian markets. If and when this cash-generating potential of the company becomes more clear, TSLA stock is likely to hit the roof.
None of the traditional automakers seem to be in such a position, which clearly tilts the scale in favor of Tesla. However, it is known that at present, the company’s finances are in bad shape. In his letter to the employees on August 29, Elon Musk had hinted that the company could be profitable and a generate positive cash flow in the fourth quarter.
The Bottom Line for Tesla Stock
Tesla Motors Inc has proved that it can meet production targets; the only thing that remains to be seen is if it is making money in the process. As investors look forward to the quarterly earnings due in early November, Tesla has to convince investors that there will be some profits coming toward the year-end. If the company can do this, there will be nothing to hold back Tesla stock.