The rally in Tesla (NASDAQ 🙂 shares is gaining strong momentum amid a wave of positive news, confirming a bullish case for the electric car maker, which some analysts say could emerge stronger after the economic downturn caused by the coronavirus pandemic.
The stock has gained more than 30% in the past five sessions and has more than doubled since the close of March 18. It was up over 2% yesterday to close the session at $ 745.21.
The upswing has contributed to the 78% rally this year, pushing Tesla into the group of mega technology stocks such as Amazon.com (NASDAQ 🙂 and Netflix (NASDAQ :), which survived unscathed steepest market slide on record
Tesla is now once again floating close to the USD 767 level at which the company raised funds through a stock offering in mid-February. It fell to a low of about $ 360 in March amid the virus-related stock market collapse.
The last rise in the stock came after Goldman Sachs recommended that investors buy the stock with a Street price target of $ 864. Tesla has a significant lead over other automakers in making electric cars and will Goldman analyst Mark Delaney is expected to maintain a strong market position in a report.
What helps Tesla is its strong brand, vertical integration and early advantage in an industry with generally long development cycles where it takes about two to four years to roll out new models.
"The Y model will help Tesla gain more traction in the major SUV and crossover market, as the price is lower than that of the Model X," said the analyst.
Strong demand for its cars
Goldman's vote of confidence came after Tesla released a better-than-expected release last week, raising expectations that the company would be in a stronger position to withstand the delay caused by the coronavirus.
Tesla delivered 88,400 vehicles worldwide in the first quarter, down 21% from the last three months of 2019. But the total was still better than the average analyst estimate for approximately 78,100.
According to Goldman, Tesla is taking advantage of the rapidly changing dynamics in the auto industry, where gasoline price does not benefit traditional car manufacturers even at about $ 2 per gallon.
Total cost of ownership for electric cars is already competitive with vehicles powered by traditional internal combustion engines in selected categories, including mid- to high-end cars, Delaney wrote.
"We expect total cost of ownership for electric vehicles to become more attractive over time as battery prices drop and combustion engine vehicles incur additional costs to meet emissions requirements, " he said. Goldman's newly established global auto team expects electric vehicle penetration to increase to nearly 15% by 2030, from 2% in 2019.
Bulls rallied behind Tesla this year, when founder and CEO Elon Musk successfully turned a corner after years of promising and underachieving. Business analyst revenue analysis for Q4 and accelerated the introduction of the new Model Y crossover.
The completion of the Shanghai plant and the company's success in exceeding its ambitious goal of selling 360,000 vehicles for the year also gave a strong signal that Tesla could quickly become a meaningful player in the industry if it would continue to achieve its goals.
When providing Q1 sales data, Tesla did not update whether it can reach its target of 500,000 units for car sales this year. The company also did not say how many vehicles it had built during the quarter at its factory near Shanghai, which started production late last year.
Needham analyst Rajvindra Gill believes it would be better to remain cautious with Tesla as demand for cars has largely collapsed in North America and Europe. In a note last month, Gill said:
“In the long term, we continue to expect margin pressure from declining sales of Model S & X vehicles with higher margins, a lower mix within Model 3, and competitive pressures from other automakers when they launch their electric vehicles over the next few years. ”
Bottom Line
Tesla's continued momentum certainly shows that the company is in a much better position to weather the current economic crisis than other car manufacturers. The company's first-quarter earnings report for the month, which is tentatively scheduled for Wednesday, April 29 after the close, should demonstrate whether current optimism is supported by fundamental factors.
