Tesla Shows Positive Momentum Pre-Q3: More Upside?


Oct. 22 2019, Published 8:54 a.m. ET

Tesla (TSLA) will release its third-quarter earnings results on October 23. Its stock is showing its typical pattern of volatility heading into its earnings week. However, its momentum this time is mostly positive. The stock had nine consecutive days of positive returns from October 7 to October 17.

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Tesla’s winning streak heading into its third-quarter results

One of the reasons for Tesla’s winning streak could be the market’s overreaction to its third-quarter deliveries report. The company reported a record quarter of deliveries amounting to 97,000 in the third quarter. However, its stock tanked after the report, as it had slightly missed analysts’ estimate of 98,000 and CEO Elon Musk’s internal target of 100,000.

Tesla got China’s approval to produce electric vehicles

Tesla got good news when, on October 17, the company got the Chinese government’s approval to build electric vehicles in the country. Reuters reported that Tesla was added to the list of government-approved auto manufacturers. Breaking ground and getting the green light for production at the facility within the span of about nine months is nothing less than a major achievement for the company.

Initially, analysts and market participants were skeptical about Musk’s plan to start production at China’s Gigafactory by the end of 2019. However, the rapid progress of this facility has shut down most critics as far as the facility’s progress is concerned. Read more details in Could Tesla’s China Gigafactory Be Its Secret Weapon?

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Baird analyst reiterates his bullish thesis

Baird analyst Ben Kallo reiterated his “outperform” rating on the stock with a target price of $355. He expects an improvement in the company’s gross margins. He said, “We think results could surprise to the upside (there is an outside shot the company achieves GAAP profitability, in our view), though there are several variables, including leasing and Service/Energy margins, which could hinder near-term profitability.”

Model 3 got four awards from Parkers

On October 21, Tesla’s Model 3 got four awards, including Car of the Year, from Parkers. The vehicle also beat out gas and diesel vehicles to get these awards. According to The Independent, this was the first time that an electric car had won Parkers’ Car of the Year award. This marked a significant milestone for the company—but not its first. In September, the Model 3 earned a top safety rating from the IIHS (Insurance Institute of Highway Safety). The IIHS reported that the Model 3 had received its first TOP SAFETY PICK+, its highest rating. In August, YouTube’s most noted auto reviewers deemed the Model 3 the “best electric car.”

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Model 3: Car of the Year

Along with Car of the Year, the Model 3 received Best Electric Car, Best Company Car, and the Safety Award at Parkers New Car Awards 2020. The Independent also quoted Keith Adams, editor of Parkers, as saying, “Although we’re a long way from the end of days for petrol and diesel, it’s good to know that the forward-thinking among us have a choice of some very talented alternatively-powered cars.” He added, “The Tesla Model 3 isn’t just a good electric car. It is a good car full stop.”

This award adds another feather in the cap of Tesla’s cheapest available car. Tesla launched the Model 3 in the United Kingdom in June. It became the third-best-selling car in the region in August. Read Could the Tesla Model 3 Disrupt the UK EV Space? for more info.

Could Tesla stock’s positive momentum continue?

Tesla has received a streak of good news in its run-up to its third-quarter earnings. However, whether the stock’s positive momentum will continue after the company’s earnings remains to be seen.

YTD (year-to-date), Tesla stock has lost 23.6% of its value. This underperformance is significant given the 19.9% and 14.9% returns of the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA), respectively. Tesla’s peers are also trading in the green, with Ford (F) and General Motors (GM) up 19.1% and 7.7%, respectively, YTD.

Tesla’s path to sustainable profitability is on investors’ minds right now. If Tesla addresses this concern even slightly in its third-quarter results, we might see its positive stock momentum continue. Otherwise, the stock could tank as it did after its second-quarter earnings miss. Read Tesla’s Profitability, Not Demand, Could Be a Problem for a detailed analysis of its profitability conundrum.


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