Tesla Stock Could Be Hitting New Highs in 2016
Let’s face facts: Tesla Motors, Inc. (NASDAQ:TSLA) has had a bad year when it comes to TSLA stock’s performance, but there are several factors working in the company’s favor for next year. If everything goes according to plan in the next few months, it looks as though Tesla’s stock price could absolutely shoot through the roof.
With the company confidently announcing Tesla is set to hit its targeted production figures in the final quarter of 2015, this positive bit of news could not have come at a better time for the electric car manufacturer. (Source: “Tesla’s bullish production outlook drives stock higher,” Reuters, November 3, 2015.) Tesla has certainly been struggling as of late, burning through cash as a result of its research and development efforts, but 2016 could be its biggest year yet. (Source: “Tesla Loss Widens, but Investors Cheer Sales Outlook,” Wall Street Journal, November 3, 2015.)
But if this is true, where did all the negativity come from?
TSLA Stock Is Troubled, but Bright Future Ahead
Much of the pessimism that has clouded Tesla stems from the company’s announcement in the summer that overall production numbers would be reduced, which affected total units deliverable.
Because Tesla went from estimating it would build 55,000 units of the “Model X” to 50,000–55,000, both investors and analysts began to seriously question the young company’s ability to deliver on its core promises. (Source: “Tesla Falls on Sales Target Cut to as Few as 50,000 Vehicles,” Bloomberg, August 5, 2015.) It’s no secret, of course, that markets rarely take kindly to the scaling back of production volumes and this issue was compounded by the fact that the Model X had already seen its delivery numbers shrink.
But this is a minor setback in the grand scheme of things and here’s why…
While recalls are a fact of life for every automobile manufacturer, Tesla is clearly in a class of its own when it comes to dealing with them. A recent announcement by Consumer Reports finds that nearly every single Tesla owner responded with specific emphasis on how quickly and efficiently Tesla made sure to make good on its recalls. Keep in mind that the manufacturer does not actually have a network of dealerships in the traditional sense, yet it still manages to handle recalls in such an excellent manner.
But it doesn’t stop there, because the very same Consumer Reports publication handed the Tesla “Model S” an astounding 103 rating out of a possible 100. If it sounds too good to be true, then think again, because Tesla cars really are that good. (Source: “Tesla Model S P85D Earns Top Road Test Score,” Consumer Reports, last updated October 20, 2015.)
Despite having been downgraded as a result of the drop in forecasted production, Tesla seems poised to break into 2016 stronger than ever. Now that the company has gotten a handle on the Model X, with no supply disruptions for the foreseeable future, next year could see TSLA’s stock price soar.
If this isn’t enough to convince you, consider that Tesla will be offering an entry-level price on some models, which starts at a comparatively low $80,000. While this price tag is nothing to scoff at, it still sits far below the “Signature” series level of $132,000. (Source: “Tesla’s Most Affordable Model X SUV Priced At $80,000, Delivery Dates Given,” Forbes, November 24, 2015.)
Tesla Could See Record Growth in 2016
The new pricing scheme is absolutely fundamental to Tesla’s continued success and I can’t exaggerate that fact. Let me explain.
Tesla’s strategy is nothing short of phenomenal, as it has followed a wholly unorthodox approach in appealing to the masses. What Elon Musk realized, in trying to market an electric car to the masses, is that building brand awareness and value is best done by employing a top-down approach. Instead of attempting to build cheap cars for the everyday commuter, the company focused on high-end luxury sedans and sports cars. This had the effect of raising the company’s profile and having consumers make the instant connection between the brand’s name and high quality.
But that’s not all, because building up brand value is only half of the equation. What every company must work on, of course, is the financial side of things and this is where the above-mentioned strategy meshed seamlessly with the reality of cold, harsh economics. Tesla could only have made it through the first few grueling years by producing electric cars that garnered high-profit margins, which is where the high-end Model S and such came into play.
Using the proceeds of these sales, the company was able to invest heavily into the research, development, and eventual production of an electric car for the masses. This step-by-step approach appears to be working, and the smart, controlled manner in which Elon Musk managed to juggle marketing, finances, and his famous love for scientific research is nothing short of astounding.
Now that’s what I call a solid business strategy and one that has huge upside growth potential.
The Bottom Line on the TSLA Stock Price
With the upcoming Tesla “Model 3” set for release next year, it looks as if the TSLA stock price will be firing on all cylinders. With analysts estimating the starting price of the new model to be around $35,000, a whole new market will be opening up for what was previously a manufacturer for the wealthy.
If Elon Musk can keep his business model on course and deliver on the promise to build high-quality electric cars at reasonable prices within reach of the average consumer, it’s more than possible that the Tesla stock price could skyrocket in 2016.