The current stock market performance of Tesla (NASDAQ 🙂 is unlike that of any other car manufacturing company. Shares of the electric vehicle maker are about to triple for the year, while the major US car manufacturers are struggling to survive the demand shock caused by the corona virus due to the sharp drop in consumer spending.
Just a year ago, Tesla shares were trading around $ 235, valuing the electric vehicle manufacturer in Palo Alto, California at about $ 40 billion. Fast forward to last Thursday's closing. The stock is now priced at over $ 1,208.
With a current market capitalization of $ 224 billion, Tesla has surpassed Toyota (NYSE 🙂 as the world's most valuable automobile manufacturer.
There are many factors that contributed to this remarkable turnaround. Perhaps most importantly, Tesla's growing ability to sell electric cars for more than they cost to put together. A recent email to employees of founder Elon Musk indicates that Tesla is about to produce a potential break-even quarter, which pertains to a period when Tesla's premier California facility spends much of the spring was closed by the pandemic.
Adding extra fuel to the incredible momentum of Tesla shares was the company's quarterly sales data, released Thursday, which showed that in the three months ending June, the company delivered 90,650 cars to customers, which exceeds the average analyst estimate for approximately 83,000.
Tesla shares rose as much as 9.7% to $ 1,228 after the news. The stock closed at $ 1,208.66 prior to the holiday weekend. These gains have boosted the valuation of Tesla shares, which are now trading at 320 times the analyst's estimated earnings for this year. In recent history, no car maker has achieved such high ratings as Elon Musk's Tesla has produced.
Yet Tesla was in a deep crisis a year ago. It was burning money; bond yields soared and the retail strategy was confused. As of March 2019, the car maker had only $ 2.2 billion in cash, compared to more than 8 billion now. How then did the company get into this exalted position so quickly? realization by the investor community that competitors would find it difficult to challenge Tesla quickly, given the company's significant dominance in the electric vehicle market.
According to Cairn Energy Research Advisors, a consultancy specializing in electric vehicle battery research, Tesla has a clear lead in building more powerful batteries and at a lower cost. The technical advantage of Tesla is that the car manufacturer uses more advanced cylindrical battery cells and the battery management system, the software that controls a vehicle's battery.
Wedbush Securities analyst Dan Ives, who has the highest price target for Tesla, $ 1,250, believes the recent rise in shares is justified given the expected acceleration in electric vehicle sales in the next 12 to 18 months, along with significant battery innovations coming from the company's Giga 3 battery factory.
"In our opinion, an episode number of 90,000 in this COVID lockdown environment is an overwhelming success and the bulls will face it as a potential paradigm changer," Ives said in a note last week.
"China proved to be the star of the show and was a major source of strength in 2Q based on our analysis and industry data."
Ives said demand from China for the company's Model 3 remains "a beam of light for Tesla in a dark global macro."
In our opinion, these victories, along with the company's leadership in the EV market, continue to make Tesla's valuation impossible to justify with standard statistics. The average analyst price target is more than 40% below the current level.
Even CEO Musk has suggested that the share price is too high. With approximately 90,000 cars delivered in the second quarter, Tesla lags behind a year ago when it reported more than 95,000 vehicle deliveries for the same period.
released in April showed a small net profit of $ 16 million, thanks to a record $ 354 million in regulated credit sales. Tesla reported a negative free cash flow of 895 million in the quarter and did not repeat any guidelines issued in January when the company said it would 'exceed 500,000 deliveries.'
Bottom Line
Shorting Tesla has proven to be a losing bet this year, but investors should be aware that the company's stock is now likely to be priced to perfection. As such, it's not a bad idea to take some risk off the table if you have a stake in the company.
Remember, Tesla's journey to the current level was no straight line higher. Since 2018, there have been two waves of sales, each beating investors, as the stock has fallen by about 50% each time.
