Tesla Stock: What Model 3 Means for the Company



Tesla (TSLA) stock has been on an upward spree since its earnings. In the third quarter, Tesla saw high Model 3 deliveries. Currently, Model 3 is the company’s best-selling vehicle. Overall, Model 3 accounted for 82% of Tesla’s total deliveries in the third quarter.

Tesla’s stock price has risen 37.2% sequentially. The stock fell earlier in the year when Model 3 deliveries were weaker. To learn more, read Tesla Stock Has Been on a Roller-Coaster Ride in 2019.

In the first nine months of 2019, Tesla’s Model 3 deliveries were at 208,265 units. As a result, the vehicle is the bestselling EV model globally.

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Tesla stock: Model 3 tops the chart

According to a Clean Technica report, Tesla’s Model 3 is first on the list of the top electric vehicles globally. According to the report, Tesla’s Model 3 sales were at 221,274 units from January to October this year. No other model came close to Model 3’s sales level. The next three vehicles on the list had sales ranging from 50,000 to 100,000 units.

Model 3 is Tesla’s bread and butter

Tesla’s Model 3 seems to be dominating the global EV market. The model is also crucial for the company. Model 3 is Tesla’s main revenue and earnings source. The company’s other models, like Model S and Model X, accounted for just 19% of its total volumes in the first nine months.

Tesla CEO Elon Musk said, “The Model S and X are really niche — they’re really niche products. I mean, they’re very expensive, made in low volume. To be totally frank, we’re continuing to make them more for sentimental reasons than anything else. They’re really of minor importance to the future.”

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Model 3 and Gigafactory 3

Tesla built Gigafactory 3 in China to strengthen its Model 3 positioning. The company aimed to price Model 3 competitively for the Chinese market. Globally, China is one of the leading markets for electric vehicles.

Gigafactory 3 is set to deliver Model 3 soon to customers. The cost of the Chinese Model 3 will be lower. Tesla will save costs related to importing the vehicle. Due to local production, Tesla won’t be impacted as much by trade tension between US and China compared to peers.

Tesla’s earnings

Next year, Tesla will usher in a new era of growth. Model 3 will be produced in the US and China. The expansion should ramp-up Model 3 volumes significantly. Higher quantities will result in increased revenues and earnings for the company.

Analysts see a massive upside to Tesla’s earnings in 2020. Also, Model Y, which will hit the markets next summer, should support Tesla’s total volumes. Analysts expect the company to post a loss of $0.6 per share in 2019 due to restructuring activities and fluctuating deliveries. However, they expect Tesla to post profits of $5.5 per share in 2020 due to ramp-ups and new product launches.

Earnings expansion could boost Tesla stock

Tesla is about to enter the growth phase next year. Model 3 will play a vital role in this phase. Wall Street has started factoring in the potential upside in Tesla’s stock price from earnings expansion. As a result, analysts raised their target prices on the stock.

Notably, Morgan Stanley’s bull case scenario places a target price of $500 on Tesla shares. The firm expects Tesla’s Model 3 production to ramp up to 450,000 units per annum by 2024–2025. Morgan Stanley expects Tesla’s electric pickup truck, Cybertruck, to support future growth.

Piper Jaffray also has raised its target price on Tesla stock. To learn more, read Why Tesla Is a ‘Must-Own’ as per Piper Jaffray.

Overall, Model 3 is crucial for Tesla. The ramp-up should raise the company’s earnings, which could help its stock price.


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