Tesla Has Bad News for Bears and Automakers

  • Tesla’s third-quarter delivery report is expected next week. There have been concerns the company’s US sales may struggle after they reached a record high in the second quarter.
  • However, a leaked email suggests Tesla’s global deliveries could surge to a new record in the third quarter. Its Chinese and European deliveries are looking strong, too. The company’s Chinese Gigafactory is set to start production on October 14.
  • The email looks like bad news for bears. Tesla stock surged more than 6% yesterday but is still down 27% year-to-date.

Tesla (TSLA) bears seemed to have had the upper hand this year, at least when it comes to its stock. The stock is down 27% this year and has gone practically nowhere in the last five years. Although the company’s deliveries have grown steadily, its lack of profitability has been fodder for bears. Could things turn around?

Q3 deliveries

CNBC reports a leaked email by CEO Elon Musk reveals Tesla is aiming for 100,000 deliveries in the third quarter. Previous reports suggested the company was struggling with its Q3 deliveries, especially in the US. By reaching the 100,000 delivery mark in Q3, TSLA could set a new record, get closer to reaching a critical mass, and prove bears wrong. The email wasn’t the first to be leaked from the company.

Tesla’s Chinese Gigafactory

TSLA currently produces all of its cars in the US. However, that’s set to change soon, as its Chinese Gigafactory looks on track to start mass production on October 14. Chinese media reports TSLA has rolled out its first Model 3 from the factory. Local production would help lower TSLA’s logistic costs and tariffs, allowing it to pass the lower costs to buyers. Tesla raised its car prices in China earlier this year as the yuan depreciated against the US dollar. However, it got some respite after China exempted several Tesla models from its purchase tax.

Sales in China

Once the Chinese Gigafactory ramps up operations, Tesla’s sales in the country could rise further. Whereas China’s EV (electric vehicle) sales fell year-over-year in July and August after years of strong growth, TSLA could grab market share from Chinese EV makers. CNBC reports Piper Jaffray analyst Alexander Potter said, “Even in a market like China, where EV models are commonplace … Teslas are among the only electric vehicles (EVs) that consumers actually want to buy.” Piper Jaffray is bullish on Tesla and has rated the stock as “overweight.”

Tesla getting a good international response

Tesla has launched in several international markets this year, and the initial response has been good. The company tweeted pictures of long queues outside its store in South Korea. And its Chinese Gigafactory and proposed European Gigafactory could help Tesla better manage its international logistics. For EV consumers, TSLA appears to be the gold standard.

Software

Traditionally, cars have basically been all hardware. However, over the last few years, they’ve acquired a big software component. Tesla recently updated its software. Yesterday, Musk tweeted, “Tesla V10.0 just started rolling out to all US Tesla owners with FSD option & ‘advanced download’ selected in vehicle software settings.” FSD stands for full self-driving.

Volkswagen’s CEO has also admired Tesla’s software abilities. The EV maker’s mix of classy hardware and advanced software, battery capabilities, and expanded Supercharging network make it a strong proposition compared with other EV makers and established automakers.

Bulls versus bears

Tesla seems to be getting closer to threatening established automakers’ dominance. While bears regularly emphasize the company’s losses, bulls argue that losses are normal in high-growth phases. Even established automakers are struggling to reach EV profitability. To learn more, read Tesla, Electric Vehicles, and the Profitability Conundrum.

Some fodder for Musk’s followers?

Yesterday, CNBC reported a US gas station had transitioned to an EV charging station, marking a first. As Tesla and Musk frequently mock gasoline cars, news of the gas station conversion could prompt a tweet from Musk.