Tesla Stock Outlook 2016
Some recent developments are raising concerns about the future of Tesla Motors Inc (NASDAQ:TSLA). Nervousness is pervading investor quarters, as investors are now questioning if TSLA stock’s growth story is over. Allow me to assuage all that stress with one positive development that bears are scared to talk about.
A quick flashback, Tesla disclosed the official numbers for deliveries at the beginning of this year, which landed close to the lower end of Tesla’s own guidance. This was the first big news that spooked the weak and faithless holders of TSLA stock at the start of 2016.
Following this was the Consumer Electronics Show (CES), where a number of new electric vehicles were unveiled by competitors, some of which managed to bag the “Tesla Killer” title. This was the tipping point for these shortsighted investors. Coupled with the general market volatility, the events caused a nine percent year-to-date dent in TSLA stock with many fearful investors abandoning ship.
As if all this negativity wasn’t enough, JPMorgan is now predicting an earnings miss in Tesla’s fourth quarter, the results for which are due to be reported in February. JPMorgan analysts are setting a $180.00 price target for TSLA stock now. (I’ll get to that in a short while!) (Source: “Tesla Motors: Model X Deliveries Too Slow for Earnings Beat, JP Morgan Says,” Barron’s, January 25, 2016.)
Yet, amid all of this negativity, there’s one positive news piece that the bears have conveniently skipped.
While Wall Street traders are fixated on short-term numbers, Tesla is busy planning something big that completely changes its long-term outlook.
Tesla chief Elon Musk has once again reiterated Tesla’s plans to open its own manufacturing unit in the company’s biggest market after the U.S. is no more a matter of speculation. It is official: Tesla is aiming to open its own factory in China to start manufacturing from within its second-biggest target market. (Source: “Tesla wants a factory in China, and fast,” Engadget, January 25, 2016.)
Tesla’s success in the Greater China area, particularly Hong Kong, cannot be underestimated. Tesla’s premium brand recognition has driven strong demand from the status-conscious and affluent middle and middle-upper classes of China, known for their brand-conscious consumer interests.
Also, the region offers massive future growth potential for Tesla because of its growing commitment to green energy.
In fact, China alone is about to become the world’s biggest electric vehicle (EV) market, stripping the U.S. of the long-held title. (Source: “China forecast to become world’s biggest electric car market,” Reuters, December 6, 2015.) It makes sense because this region, being the most populous and heavily industrialized, is currently struggling with one of the worst problems of air pollution and smog.
Now, having struggled with a negative bottom line, costs remain the biggest concern for Tesla. But manufacturing from within China will relieve the company from this major concern. All Tesla will have to do is find a local partner—a prerequisite for any foreign company that intends to work from China—and it will almost instantly achieve cost savings on import duties and deliveries.
Tesla is still in its nascent phase, so to write off growth even before the company hits that phase is completely unwarranted. I believe that 2016 will mark the year the EV industry will take off, as more and more companies enter the market. This growing competition will only lend further to Tesla’s growth and validate Elon Musk’s dream of making all transportation modes all electric-powered.
The Bottom Line on TSLA Stock
As for JPMorgan’s price target of $180.00, anybody can see the sheer conservatism here. This target is narrowly focused on “Model X” deliveries, which certainly missed guidance. However, this report ignores the fact that the “Model S” surpassed targets by a margin.
Tesla has massive room for growth on the back of the China expansion and its next big launch, the “Model 3”—the cheaper Tesla for mass-market appeal. Both of the factors will likely drive TSLA stock higher, as the company continues to expand its stronghold over one of the fastest-growing industries this year.