Tesla Stock Forecast Jumps with Market Cap
Tesla Inc (NASDAQ:TSLA) passed a huge milestone with its market cap overtaking General Motors Company (NYSE:GM) as the most valuable U.S. auto firm. The electric car company is looking to turn its potential into reality as Tesla’s value now outranks its competitors.
But with General Motors Company, Ford Motor Company (NYSE:F), and many other auto manufacturers selling far more vehicles than Tesla, is the valuation appropriate? More importantly, what does the news mean for the Tesla stock forecast?
The thing about TSLA stock is that it is running on hype right now. Elon Musk wants to deliver the car of the future, and as such, investors are betting big that Tesla will be able to not only sell tons of vehicles, but also be able to produce the requisite number of them on time to actually match its market cap.
The idea that Tesla cars will one day be able to spread far and wide across the U.S. and the world is a tempting one, but at the moment it is still just that—an idea. A dream, really. What investors need to determine before investing in Tesla stock is whether that dream has any basis in reality.
Let’s look at some of the numbers (which are daunting for Tesla).
For instance, the green tech company delivered fewer than 80,000 vehicles globally last year, compared to Ford’s 6.7 million. (Source: “Tesla Inc now has a market cap bigger than Ford’s — and GM’s,” Financial Post, April 3, 2017.)
Of course, the massive disparity is looking to be undone by the release of Tesla’s first mass-consumer offering, the Tesla “Model 3.” The Tesla Model 3 price is currently set at $35,000 before subsidies, but that price is without factoring in the many upgrade options, which analysts believe will likely shoot the price up into the $40,000 range, while other doomsayers predict even higher prices. (Source: “Tesla Model 3 average sale price and budget to be closer to $50,000 based on latest data from reservation holders,” Electrek, April 6, 2017.)
Conflict regarding the final pricing aside, the point here is that the Model 3 has already received over 400,000 reservations and will begin shipping in 2018, according to the current Tesla plan.
If sales for the Model 3 and the other vehicles in the Tesla fleet can continue apace, then Elon Musk may be able to hit his lofty goal of shipping 500,000 vehicles by 2020.
And shipping that number of vehicles would also help Tesla’s balance sheet. The company lost $2.3 billion over the last five years, while Ford registered a net income of $26.0 billion. Ford’s net revenue similarly dwarfed Tesla’s, coming in at $151.8 billion in 2016 compared to Tesla’s $7.0 billion.
Again, the Model 3 will have a positive effect on Tesla’s financials if everything goes according to plan, which again situates Tesla for success to come in the future, but may not justify its market cap in the present.
While Tesla certainly has the potential to rival these bigger and older car companies in the U.S., a statistic out of IHS Markit Ltd is quite telling: Tesla sold 40,697 vehicles in the U.S. last year. Ford, on the other hand, sells that many “F-Series” trucks in the U.S. in about three weeks. (Source: Financial Post, op cit.)
Again, the well-established and foundational strength of its rivals would seem to put Tesla at a disadvantage, but investors need to know that they aren’t putting money into TSLA stock as it is today. Instead, analysts and investors are hot on Tesla because of what it can be tomorrow. And that’s what makes the Tesla stock forecast so exciting; this may be one of the hottest stocks of the next decade, with, of course, the caveat being whether the company can hit its ambitious expectations.
As far as I’m concerned, Tesla has strong leadership, excellent tech talent, and an unbeatable brand that will propel the company into the stratosphere in the next few years, with most of that belief riding on a smooth release of the Model 3.
But, beyond the Model 3, there are a few other circumstances surrounding Tesla that investors ought to be wary of.
Chart courtesy of StockCharts.com
The Musk Trump Connection
While the Model 3 is going to be the biggest next step for Tesla stock, one wildcard factor could be nearly as consequential: the presidency of Donald Trump.
No relationship has been stranger in the current Musk Trump relationship. While the two divert on a wide range of issues, that has hardly prevented the two from forming a seemingly beneficial relationship, at least as far Tesla is concerned.
While Tesla has so far done well under the Trump White House, the ways that TSLA stock may be impacted in the future are numerous and could result in a multitude of different outcomes.
First, there’s the optics of the relationship. Musk has crafted an image of himself in the public consciousness as a man of the future, a harbinger of technologically progressive change. Solar panel roofs, autonomous vehicles, putting humans on Mars; all these and more are projects that Musk hopes to see completed via Tesla, SolarCity Corp (NASDAQ:SCTY)—of which Tesla is the parent company—and SpaceX, an aerospace manufacturing company that Musk also heads.
Trump, on the other hand, has positioned himself as a more grassroots type of politician, touting the former glory of the U.S. and more old-school energy solutions, like a return to coal.
We can assume that many of those who buy solar panels and Tesla vehicles will likely find themselves leaning left on the political spectrum. As such, those with a more environmentally-focused mindset have naturally been taken aback by the Tesla CEO’s apparent support of Trump and his anti-global warming tendencies.
“[Elon Musk] sees himself as kind of a voice of reason,” said Musk biographer Ashlee Vance in a Bloomberg interview. Vance offered that as a response to Musk fans who may be offended by his closeness to the divisive President Trump. Vance said that Musk probably believes he could present different perspectives to the president on a variety of issues, from global warming to manufacturing. (Source: “Elon Musk’s Influence on President Trump,” Bloomberg, February 10, 2017.)
Ultimately, Vance described the relationship as one born of pragmatism.
Which also makes sense for Tesla stock. After all, Tesla is partly fueled by $2.391 billion in government subsidies; it wouldn’t make sense for the company to bite the hand that feeds it.
Over half of that subsidy—$1.29 billion—derives from Nevada tax incentives for Musk’s ambitious “Gigafactory,” and are primarily comprised of tax breaks over a 20-year period. The Gigafactory is a massive lithium-ion battery facility currently under construction. (Source: “Complete breakdown of the $4.9 billion in government support the LA Times claims Elon Musk’s companies are receiving,” Electrek, June 2, 2015.)
Musk hopes that the factory will become the prototype for a number of similar plants that will help Tesla reach its lofty projected production numbers.
And that’s just accounting for Tesla; SolarCity takes in about $2.5 billion from the U.S. government via subsidies, tax exemptions, and other deals.
Which is to say that Elon Musk—and TSLA stock investors—have a vested interest in cozying up to elected officials.
Another note of interest is businessman Peter Thiel’s presence in the administration. Both Thiel and Musk were involved with Paypal Holdings Inc (NASDAQ:PYPL). Thiel’s close proximity to the president places a Musk-backer in a position of power that could help not only maintain the Musk Trump dynamic, but strengthen it.
Trump crafting policies while both Thiel and Musk are nearby could spell out huge gains for TSLA stock. The question is of course how much of those policies will be influenced by Thiel, Tesla, and Musk.
Musk’s detractors, meanwhile, view his position on the council as signs that he is the beneficiary of crony capitalism. (Source: “Trump is turning Elon Musk into a crony capitalist,” The Verge, February 6, 2017.)
In any event, the Musk Trump connection is one that will undoubtedly shake up the potential sales of the company moving forward.
For instance, if Trump, ever the wildcard, decides it’s in his best interest to further his “America First” campaign slogan by providing more subsidies for Tesla, there will be even more incentive for consumers to purchase these vehicles. On the other hand, should Trump sour on Tesla and Elon Musk, the removal of federal subsidies or more focus on helping the old guard auto manufacturers could spell disaster for Tesla stock.
Beyond the Model 3 price and other areas of interest surrounding the newest offering, the Trump administration will have one of the biggest effects on TSLA stock moving forward.
TSLA Stock Predictions
As I’ve written before, as bullish as I am on Tesla stock, it is by no means stable.
For now, there’s just too much in the air that could shake things up, for good or ill, for the technology-pushing, ground-breaking company. At the same time, investors are faced with an opportunity that doesn’t come along very often: getting in on the ground floor of what may be a defining company as the next century progresses.
If electric vehicles are the way of the future (which all signs point to) and Tesla becomes the automaker of choice for said vehicles, then you’re looking at one of the best tech stocks.
My Tesla stock forecast is positive, as I believe that Elon Musk (the talent behind his company) and the Tesla’s products are likely to propel the company to great heights. That does not mean the investment is without risk, but I believe it could be a risk worth taking.