TSLA Stock Forecast: Elon Musk Aftermath?

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Tesla Stock Forecast

If you need ideas to make a movie about the stock market, then look no further than Tesla Inc (NASDAQ:TSLA). Starting with a tweet from the company’s Chief Executive Officer, Elon Musk, TSLA stock had on a wild ride over the past two months.

In response to the now famous “Tesla 420” tweet, the U.S. Securities and Exchange Commission (SEC) went after the company. Musk and Tesla managed to settle with the SEC, but they have to pay some hefty fines. And while Musk can remain as the CEO, there will be a new Tesla Chairman.

Where is Tesla stock going after all this drama? Let’s take a look.

Tesla stock has always been known to be volatile, but things went up a notch on August 7, when Elon Musk tweeted, “Am considering taking Tesla private at $420.” The charismatic CEO even added, “Funding secured.”

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Now, keep in mind that Tesla shares were trading at around $340.00 apiece prior to the tweet. Therefore, the $420.00 price suggested by Musk represented a huge premium. TSLA stock shot up right after the tweet and closed with an 11% gain on that trading day.

But concerns quickly arose. The SEC began to investigate the situation, and Tesla shares started the journey downward.

Elon Musk’s SEC Issues

The real kick in the teeth came on Thursday, September 27, when the SEC charged Elon Musk with securities fraud for misleading tweets. Moreover, the SEC was seeking “a permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.” (Source: “Elon Musk Charged With Securities Fraud for Misleading Tweets,” U.S. Securities and Exchange Commission, September 27, 2018.)

In the following trading session, Tesla stock plunged 14%. With Musk being perhaps the most important person behind the company’s success, investors were wondering, “Can TSLA survive without Elon Musk?”

The story did not end there. Over the weekend, the SEC announced that it had settled charges with Musk. The settlements require Musk to step down as Tesla’s Chairman, and he will be ineligible to be re-elected Chairman for three years. (Source: “Elon Musk Settles SEC Fraud Charges; Tesla Charged With and Resolves Securities Law Charge,” U.S. Securities and Exchange Commission, September 29, 2018.)

Furthermore, Musk and Tesla will each pay a penalty of $20.0 million. With a total penalty of $40.0 million, that was one expensive tweet.

Still, the big news was that Musk can remain as CEO of the company. And that was reassuring for Tesla stock investors; on Monday October 1, TSLA shares skyrocketed more than 17%.

The chart below shows the stock price performance of Tesla Inc since Musk’s tweet on August 7.

Chart courtesy of StockCharts.com

Tesla Production Numbers

Where is Tesla stock going next? Well, while Tesla operates through several different segments, investors consider it largely as an automaker. And this time around, the keyword is “Model 3.”

You see, Tesla has been making electric vehicles for quite some time, but the Model 3 marked Tesla Inc’s foray into the mass market. When the car was first announced in 2016, the company received more than 400,000 reservations within a few months.

Actual production began in mid-2017, with the first 30 cars delivered on July 28 of that year. For investors of TSLA stock, the big question has been whether the company can ramp up its Model 3 production to meet the huge demand.

Earlier this week, the company provided an update on its vehicle production and deliveries. In the third quarter of 2018, Tesla produced 80,142 vehicles, marking a 50% increase from the second quarter. (Source: “Tesla Q3 2018 Vehicle Production and Deliveries,” Tesla Inc, October 2, 2018.)

In particular, the company produced 53,239 Model 3 vehicles in the third quarter, which nearly doubles the volume in the second quarter. Notably, Tesla produced more than 5,300 Model 3 vehicles in the last week of the quarter. And since most of those vehicles were dual motor, the company essentially achieved a production rate over 10,000 drive units per week.

On the deliveries side, Tesla delivered a total of 83,500 vehicles in the third quarter. Again, the spotlight was on the Model 3; during the quarter, the company delivered 55,840 Model 3 vehicles, which is around twice as many as it did in all previous quarters combined.

The company mentioned that its, “Q3 Model 3 deliveries were limited to higher-priced variants, cash/loan transactions, and North American customers only.” In other words, if the company introduces leasing or lower priced variants of the car, Tesla Model 3 deliveries could get another solid boost.

Tesla Financials

Needless to say, Tesla Model 3 sales could play an important role in determining TSLA stock’s next move. But just as important, in my opinion, is the company’s financials.

You see, Tesla is a fast-growing company, but it should no longer be considered a startup. With a market capitalization of over $45.0 billion, investors expect the company to turn a profit at some point.

According to the most recent earnings report, Tesla had an adjusted loss per share of $3.06 in the second quarter, which was wider than Wall Street’s expected adjusted loss of $2.92 per share. Revenue, on the other hand, topped estimates: Tesla generated $4.0 billion of revenue in the quarter, while analysts projected $3.92 billion. (Source: “Tesla Second Quarter 2018 Update,” Tesla Inc, August 1, 2018.)

The focus right now is on the company’s performance in the second half of this year. For the third quarter of 2018, analysts are projecting a much narrower loss of $0.27 per share for Tesla. And for the fourth quarter, Wall Street expects Tesla to actually earn a profit of $0.72 per share. (Source: “Tesla, Inc. (TSLA),” Yahoo! Finance, last accessed October 4, 2018.)

If the company can deliver positive earnings in the upcoming quarters, it could be a major catalyst for TSLA stock.

Analyst Take

There you have it. Elon Musk can remain at the helm, but Tesla Inc will have a new board Chairman. At the same time, market participants will continue to pay close attention to Tesla’s Model 3 production and delivery numbers. And if the company manages to turn a profit, it could bring some bullish sentiment to TSLA stock.