TSLA Stock to Take a Breather Before Moving Higher
Tesla Inc (NASDAQ:TSLA) announced its fourth-quarter and fiscal-year results on February 22, and TSLA stock has been on a roller coaster ride since then.
Last week, the company filed its first annual report as the only vertically integrated sustainable energy company in the world, but investors are not impressed. Tesla stock is likely to trade at a subdued level for a while, as the bears seem to be leading the charge at the moment.
So why has the tide turned against the company?
When Tesla Inc announced its fourth-quarter results on February 22, it posted a higher-than-expected Q4 loss, although sales beat expectations. The company also informed that former CFO Deepak Ahuja will be returning to the company next month, as the current CFO Jason Wheeler planned to leave to pursue his interest in public policy. (Source: “Tesla, Inc. Form 8K,” EDGAR Online, February 22, 2017.)
But the most important announcement that investors were looking for never came. Expectations were high that Tesla would be releasing updates related to the “Model 3” and confirm its beta prototype of that car model. Tesla Inc’s first mass-market electric sedan is touted to be a big leap forward for the company, and one that would send TSLA stock skyrocketing.
Sentiments were bullish ahead of the Tesla results announcement and pushed the stock to a high of $273.51. However, no clarity on the Model 3 spooked investors and plunged Tesla stock the following day, which closed at $255.99.
Model 3 Worries Tesla Stock Investors Again
Model 3 is Tesla’s lower-priced sedan designed for the mass market that the company intends to start delivering in the second half of 2017. However, it was highly anticipated that the company would start test-building the Model 3 on February 20, just in time for the announcement of fourth-quarter results two days later.
But the management team did not divulge any details in either the quarterly report or the conference call. Even the 10-K filed with the U.S. Securities and Exchange Commission (SEC) did not talk about the beta prototype. This has brought investor concerns to the surface again that Tesla may not be able to meet its production targets for Model 3. (Source: “Form10-K,” Tesla, Inc., December 31, 2016.)
The company said in its annual filing, “We expect that the next performance milestone to be achieved will be the successful completion of the Model 3 Beta Prototype, which would be achieved upon the determination by our Board of Directors that an eligible prototype has been completed.”
The statement clearly indicates that a beta prototype was still not ready until this report was filed, and is the cause of discomfort for investors. A lot is riding on the successful launch of the Model 3, and anything unexpected could hurt Tesla stock.
Tesla Inc. investors are also worried about the rising capital expenditure in 2016. CEO Elon Musk stated in the conference call with analysts that it would make sense to raise capital to reduce risk, although the company has enough cash on hand to bring out the Model 3. (Source: “Tesla posts wider-than-expected loss of 69 cents a share; CFO Wheeler to leave at end of April,” CNBC, February 22, 2017.)
The statement by Musk is another warning bell for investors who are not able to get clarity as to how much capital Tesla would be spending, post-SolarCity Corp (NASDAQ:SCTY) acquisition as well as to build a vast electric vehicle (EV) charging network. These uncertainties are weighing on TSLA stock at the moment.
However, such uncertainties have always characterized Tesla Inc, and there are high investments that need to be made to provide the competitive edge to Tesla in the future. Moreover, the cost reductions likely to be achieved on the completion of the “Gigafactory“ will be a big boost to the company and Tesla stock.
The Cult of Elon Musk Drives TSLA Stock
One of the most important things to remember about Tesla stock is that it is hard to value the stock based on popular conventional models. Tesla enjoys an enviable fan base and, combined with the vision of Elon Musk, TSLA stock is a cult stock. This also makes it quite a volatile stock.
Below is the chart that shows the stock movement over the past three months, when Tesla price rose by a phenomenal 35%.
Chart courtesy of StockCharts.com
A recent piece of news confirms how the cult of Elon Musk will keep the stock riding high for a long time to come. The media is full of stories of how Bria Loveday, a fifth-grader, suggested to Musk that he should hold a competition for fans to come up with a Tesla commercial. (Source: “Exclusive: Letter From Child Prompts Musk To Run Tesla Fan-Made Commercial Competition,” Inside EVs, March 1, 2017.)
Elon Musk loved the idea and thanked her by posting this tweet.
And not only has the Tesla chief responded, but he also launched the fan-made commercial competition, dubbed “Project Loveday,” on Sunday. This is something unheard of in the auto or energy sector. And this kind of action is where the company’s biggest strength lies. (Source: “Project Loveday,” Tesla Inc, March 5, 2017.)
Tesla fans love the company’s products and believe Elon Musk completely. At present, there does not seem to be any development that suggests that Tesla products will not be in demand in the coming future. On the contrary, the supply seems to be unable to catch up to the demand for Tesla products. This is one of the top reasons to be bullish on Tesla stock.
TSLA stock may trade lower in the short term but, for patient investors, it is a stock that could pay off in the long run. However, investors should embrace themselves for the volatility that is unlikely to go away.