3 Tailwinds for Tesla Stock (TSLA)
Tesla Motors Inc (NASDAQ:TSLA) has entered 2017 off of an upbeat quarter, which could help the company’s share price make bigger moves in this new year. In fact, there are three fundamentals that could drive Tesla stock (TSLA stock) through the roof now that it has shaken the pessimism of 2016.
Let me explain…
Last year’s volatility set the stage for an enormous bullish run on TSLA stock. The electric carmaker was going through a period of transformational change; it unveiled a mass-production vehicle, acquired SolarCity Corp (NASDAQ:SCTY), and rushed to complete its “Gigafactory.”
Since the stock market is generally conservative—by which I mean risk-averse— these drastic actions sent Tesla stock on a roller coaster ride. The share price hit peaks of $265.42 and valleys of $143.67, all within a three-month period. Nonetheless, investors who hung on during the upswings and downswings would have enjoyed a 20% increase in the last three months of 2016.
This momentum is expected to carry forward through the remainder of 2017. From a fundamentals standpoint, there are three tailwinds driving TSLA stock higher.
1. Solar Power Is Becoming the Cheapest Form of Energy
Some of you may remember a piece I wrote at the end of 2016 about the Bloomberg New Energy Finance report. This report was amazing for the solar industry, mainly because it showed that the lifetime costs of solar prices were far lower than coal and gas. Since Tesla just acquired one of the biggest players in rooftop solar, this bodes extremely well for it.
Consumers tend to respond to price incentives more than anything else, so the shift toward solar will take on a life of its own in the rest of the year. It won’t just be with environmentalists or people who want to live off the grid; solar is on the verge of going mainstream. (Source: “Liebreich: A year of hectic change and off-target predictions,” Bloomberg New Energy Finance, December 14, 2016.)
2. The Gigafactory Is Complete
Tesla’s gargantuan-sized battery factory in the middle of the Nevada desert became fully operational in the first week of 2017, suggesting that we could start to see Tesla’s capital expenditures level off this year.
Other than an expansion of Tesla’s network of charging stations, there is little left to build. The company has the car-making factory, battery production facility, and enough dealerships to move its products. With its business finally moving to scale, we expect Tesla’s cash flow to exceed expectations.
3. Other Carmakers Are Following Tesla Down the Electric Vehicle Path
On its face, this may look like a bad thing. It would be easy to think that Tesla stock will crumble once General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) get fully involved in electric vehicles, but that’s overly simplistic. By imitating Tesla, these companies are admitting that Tesla was right all along. They are bringing the culture of electric vehicles to the broader market, which will convince more and more people to buy EVs.
Now, I’ll admit that Tesla would be in trouble if it were only selling luxury vehicles, but the “Model 3” it unveiled last year was priced to compete. The company received 400,000 pre-orders for that vehicle (making it the largest consumer product opening ever), some of which will be filled in 2017. So, when people start shopping for electric vehicles, they may go to the established brand in that corner of the market: Tesla.
Final Word on Tesla Stock
In other words, 2016 was a year for bold risk-taking by Tesla. Those risks started to pay off in the final quarter of the calendar year, which is why we saw a surge in TSLA stock. Now the company’s momentum is accelerating through 2017, promising huge gains for anyone holding shares of Tesla stock.