A 75% return in two months? That’s what you would have gotten if you invested in Tesla Motors Inc (NASDAQ:TSLA) stock back in February. But don’t worry if you missed the profit train last time, Tesla stock has plenty of potential down the road.
TSLA Stock Just Climbed Above a Critical Level
Of course, if you look a bit further back, you’d see Tesla stock’s dramatic downturn since the beginning of this year. With TSLA stock plunging more than $100.00 per share, even the die-hard Tesla believers might have gotten a bit worried.
Usually, when a stock reverses from such a dramatic bearish run, there are several resistance levels to go through. Fibonacci ratios are often used to determine the key resistance levels during retracement periods. As you can see from the chart below, TSLA stock had a bit of a hiccup at the 50% retracement level in early March, slowed down at the end of March, but quickly went back to its upward trend.
When a stock goes up so much and so fast, it’s expected to have some pullbacks. And that’s what Tesla stock did. As the sentiment following its “Model 3” launch cooled off, Tesla had several red days.
However, that doesn’t change the fact that the stock is now above its 100% retracement level. And judging by what happened this month, that level could be a new support. Since entering March, the stock has touched its pre-crash high of around $247.00 twice but managed to bounce back on both occasions. With Tuesday’s slip, it’s touching that level again.
Chart courtesy of www.StockCharts.com
Tesla bears always like to argue that the company doesn’t have enough production capacity. Sure, last year’s guidance was revised down more than once, but overall, production has been ramping up quite impressively.
Tesla experienced some parts shortages with its “Model X” SUV in the first quarter. But these issues have been resolved, and according to the company, “production and delivery rates improved dramatically.” In the last full week of March, Tesla’s build rate for the Model X rose to 750 per week. (Source: “Tesla Delivers 14,820 Vehicles in Q1 2016; On Track for Full-Year Delivery Guidance,” Tesla Motors Inc, April 4, 2016.)
Robert W. Baird & Co. analyst Ben Kallo recently visited Tesla’s factory and saw Model Xs in production. He said, “we believe that TSLA’s manufacturing skills, ability to lower input costs and constant efficiency initiatives will allow the company to reach its 25%+ Model X gross margin target over time.” (Source: “Baird Brushes Off Model X Concerns in Tesla Upgrade, Sees High Short Interest as Catalyst for Upside,” Benzinga, March 14, 2016.)
After his trip to the factory, the analyst upgraded Tesla stock from “Neutral” to “Outperform” with a price target of $300.00.
And let’s not forget what a tremendous job Tesla did last year. The company delivered a total of 50,557 vehicles in 2015, nearly 60% more than the amount in 2014. (Source: “Tesla 2015 Deliveries Squeak Past 50,000, with 208 Model X During Q4,” Green Car Reports, January 4, 2016.)
Note that Tesla managed to increase delivery at a time when sales of similarly priced cars were struggling. In the U.S., both the Mercedes-Benz “S-Class” and the BMW “7 Series” experienced year-over-year declines in sales in 2015. How did Tesla do? A 51.01% sales increase! (Source: “Tesla Fourth Quarter & Full Year 2015 Update,” Tesla Motors Inc, February 10, 2016.)
What’s even more impressive is what Tesla’s customers are willing to do when the company launches a new product. You see, most people today don’t want to be guinea pigs. They want to buy products that are proven to be reliable. Tesla fans, however, are more than happy to be beta testers.
The company unveiled the Model 3 on March 31. Last week, it was reported that preorders were approaching 400,000. That’s a remarkable number given that you have to put down $1,000 to make a reservation on something that isn’t expected to begin production until late 2017. (Source: “Tesla’s Model 3 Reservations Rise to Almost 400,000,” Fortune, April 15, 2016.)
The Bottom Line on TSLA Stock
Tesla is an amazing company with a huge presence in the market in which it operates. All it needs to do now is increase production to make money from it. Based on its current progress, the profitable day might come soon—and that should be reassuring for TSLA stock investors.