TSLA Stock Surges After Solid Quarter
Tesla Motors Inc (NASDAQ:TSLA) stock is surging in pre-market trading after Chief Executive Elon Musk stepped up an already aggressive timeline for the production of the company’s all-electric cars.
On Wednesday, Tesla announced it is advancing its goal to produce 500,000 vehicles per year by two years. Previously, the fast-growing automaker wanted to achieve this milestone by 2020. Now, the company wants to hit this number by 2018. (Source: “Tesla First Quarter 2016 Update,” Tesla Motors Inc Investor Relations, May 4, 2016.)
“Given the demand for Model 3, we have decided to advance our 500,000 total unit build plan (combined for Model S, Model X, and Model 3) to 2018, two years earlier than previously planned,” Musk wrote in the company’s letter to shareholders. “Increasing production five fold over the next two years will be challenging and will likely require some additional capital, but this is our goal and we will be working hard to achieve it.” (Source: Ibid.)
Investors were obviously pleased. Shares of Tesla stock surged as much as seven percent in after-hours trading following the announcement. Ahead of the opening bell on Thursday, TSLA stock was trading up $8.39 per share or 3.77%.
The question now is whether this plan is realistic…or just another Elon Musk delusion.
Tesla has a long history of setting ambitious targets only to later disappoint investors. For context, Tesla only delivered about 50,000 vehicles last year. Hitting the new target will require the company to ramp up production tenfold in less than 24 months.
Sales won’t be an issue. In the first week of taking deposits for the “Model 3,” the company received more than 325,000 reservations. This implied about $14.0 billion in future sales, making the vehicle the biggest consumer product launch ever.
Rather, it will be the logistical challenge of actually building the cars. From plants and machinery to hiring the engineers and assembly workers, Elon Musk is taking on one of the largest industrial challenges of the 21st century. Though, given the lofty multiple for TSLA stock, he has the financial resources to pull this plan off.