Electric car manufacturer Tesla (NASDAQ 🙂 had a dramatic turn fortune in the last quarter of 2019. After reporting a surprise gain in October, the shares are in a tear and have since risen around 75%.
And the good news for Tesla bulls is that the rally received a new boost at the start of the new year. The company announced last week that it delivered a record number of 112,000 vehicles in the fourth quarter and has started production at a new plant near Shanghai, where it builds 1,000 Model 3 sedans every week.
Indeed, equities have risen by more than 34% in the last month, and nearly 7% in the last three sessions alone, to close on Friday at $ 443.01.
Both developments came after a very troubling year for Tesla, which shook investors' confidence in the company's founder and CEO, Elon Musk, who amazed the shareholders with a plan to ultimately keep the company private. These missteps, along with a series of broken promises, forced many top analysts to downgrade Tesla's stock and even question the seriousness of Musk & # 39; s mission to disrupt the traditional automotive industry.
For Tesla bulls, that ambitious goal is suddenly within reach after recent breakthroughs. The completion of the Shanghai "gigafactory" plant in less than a year and the company's success in surpassing its ambitious goal of selling 360,000 vehicles for the year are a powerful sign that Tesla is quickly becoming a major player in the industry can become if it continues to achieve its objectives.
"2020 represents a pivotal year for Musk & Co.," said Dan Ives, an analyst for Wedbush Securities, in a note to investors on Friday.
"This will be the year the bulls have waited with China on board and Musk & # 39; s grand [electric-vehicle] vision may begin to materialize."
For Ives, China remains the most important & # 39; swing factor & # 39; where Tesla started local deliveries of compact Model 3 cars made in China. There it is also preparing to start the production of a new model Y compact sport-utility vehicle in the summer.
Major risk & # 39; s for Tesla Stock
Despite this optimism, it is not clear whether China will soon become a profitable enterprise for Tesla. The sale of electric vehicles has weakened in China in recent quarters as the government reverses subsidies on vehicles with alternative energy.
A slowing car market in China, the abolition of US tax credits for Tesla buyers and the risk that Musk will again fail to deliver on his promises are some of the main obstacles that can delay the rally of shares in 2020. company had a similar strong finish as 2018, but produced huge losses for shareholders in the first half of 2019.
In order to consolidate its position, Tesla has to demonstrate in the coming quarters that it can translate all these benefits into generating a consistent, free cash flow and can reduce its debts. But the problem with the company's shares is that it reacts too wildly to bad news, making it a favorite target for speculators.
Unimpressed by Tesla & # 39; s spectacular rally in Q4, Morgan Stanley reiterated his $ 250 price target for the company last month, saying the current valuation cannot be maintained. Analyst Adam Jonas said in a recent note that investors will eventually cease to see Tesla as a technology company and lower stock prices to levels similar to those in the automotive industry.
"We are not bullish on Tesla in the longer term, especially as we believe over time that Tesla can be perceived more and more by the market as a traditional automotive OEM," Jonas wrote.
"We are prepared for a potential increase in sentiment through 1H20, but doubt sustainability."
Tesla last traded around $ 250 in October last year.
Bottom Line
There is little doubt that Tesla is back on the right track after boosting its production and building a factory in China that could represent a breakthrough for the company's long-term profitability. But the groundbreaking automaker must quickly show that all of these milestones help the company achieve sustainable profitability and that the good times are here to stay, unlike so many of its earlier boom-and-bust cycles.
