Tesla Demands a Premium Valuation
I’m not sure if you were like me and watched the impressive launch of Elon Musk’s SpaceX “Falcon Heavy” rocket on Tuesday.
The most powerful rocket to have taken off since the “Apollo” missions 50 years ago, the Falcon rocket had enough payload potential to carry the Boeing “787 Dreamliner” into orbit. The fact that two of the three booster rockets successfully landed back on land in an upright position shows innovation.
The staggering rate of the innovation at SpaceX under the leadership of Musk— who, of course, also runs Tesla Inc (NASDAQ:TSLA)—is mind-blowing, and reflects why investors love the stock.
If you didn’t have a chance to watch the launch, I suggest you do so. Also note that Musk attached his personal red “Tesla Roadster” to the craft with cameras mounted to it, to give us a look out at space—while playing David Bowie’s “Space Oddity” in an indefinite loop.
You may think that the Tesla Roadster gimmick is somewhat self-serving; the thing you cannot deny, however, is the brilliance of Musk.
Back on earth, TSLA stock has been on its own explosive rocket-like ride, catapulting 61% from its 52-week low to $389.61 on September 18, 2017 prior to subsequent weakness.
Tesla stock has managed to stage several major breakouts over the last few years, first at $180.00, followed by another breakout at $280.00.
Chart courtesy of StockCharts.com
TSLA stock rocketed from $280.00 to just below $400.00, but it is now in a downward channel—which dates back to April 2017—that could see the stock decline to $300.00 support.
Keep a close eye on the $300.00 support level. Failure to hold here could see TSLA stock retrench toward the next major support zone at roughly $250.00 to $260.00.
I’m not convinced that Tesla will decline back to the secondary support, but, if it does, I would view this as a great opportunity to accumulate shares.
How TSLA Stock Could Run Higher
Tesla is often compared to Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM), but, after some thinking over the past few years, I have realized that Tesla is much more than an automobile maker and, as such, demands a high valuation.
While Tesla also has an emerging solar energy segment with amazing potential, the key for investors at this stage is the company’s cash burn rate and its production numbers.
Tesla is faring pretty well with its high-end “Model S” and “Model X” vehicles, but the issue is the company’s ability to ramp up production of these vehicles.
At the same time, Tesla is dealing with the initial production of its entry-level “Model 3” car, which, priced at around $35,000, has generated a massive number of back orders.
In the fourth quarter, Tesla delivered a combined number of 28,425 Model S and Model X vehicles, up 28% year-over-year, and it produced 1,542 Model 3 cars.
These aren’t exactly numbers that can see Tesla fill its massive back orders in a quick manner, and therein is the problem.
Tesla still estimates it can deliver 2,500 Model 3 cars by the end of the first quarter and ramp the delivery to 5,000 units by the end of June.
Of course, it remains to be seen whether Tesla can deliver. The technology and attraction of the vehicles are obvious, but, unless the company can produce the cars and fill the orders, TSLA stock could trade lower. If this happens, I would consider adding positions.