Tesla Stock Bears Are Down but Not Out!



Tesla (TSLA) stock is rising to new highs with its fourth-quarter deliveries beating the guidance. The company reported deliveries of 112,000 vehicles in the quarter—much higher than 104,440 vehicles needed to cross over the lower end of the yearly guidance range of 360,000.

The results sent Tesla stock soaring. The stock has risen to $443—an all-time high. Tesla stock’s upward spree, which started with the company’s third-quarter earnings, has continued. The stock rose due to surprise profits and clarity on its growth path.

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Wall Street analysts reacted in a mixed manner to the beat. While a few analysts appreciated the company’s performance, some others were concerned. According to a Business Insider report, analysts Jed Dorsheimer of Canaccord Genuity and Daniel Ives of Wedbush were positive about Tesla’s performance. However, Garrett Nelson of CFRA and Toni Sacconaghi of Bernstein were concerned.

What do Tesla stock bulls believe?

Dorsheimer saw the record production of 105,000 units in the fourth quarter as a clear sign of rectification of earlier production issues. He also said that the production of 1,000 units per week in Gigafactory 3, which didn’t exist about a year ago, is “truly a remarkable feat.”

Wedbush’s Ives said that Tesla’s fourth-quarter delivery numbers had an “impressive performance.” He thinks that Tesla’s Gigafactory 3 in China is the catalyst for 2020. He thinks that production in China and demand in the region could serve as the company’s growth drivers.

He also thinks that “If Tesla is able to sustain this level of profitability and demand for the company going forward, especially in Europe and China, then the stock (and bull thesis) will open up a new chapter of growth and multiple expansion in our opinion.”

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Why Tesla bears are concerned

CFRA’s Nelson thinks that the rise in delivery figures in the fourth quarter was due to the expiration of federal EV (electric vehicle) tax credits. Also, he seemed concerned about the sustainability of the company’s gross margin in the scenario of rising competition.

Nelson pointed to the EV market in the US. He said that more than 25 EV models will be launched this year in the US. The vehicles will be eligible for the federal EV tax credit. The vehicles could mean stiff competition for Tesla, which recently reduced its prices in China in a bid to be more competitive. Notably, Tesla cars aren’t eligible for US federal tax credits this year. Last year, Tesla lowered car prices in the US after the federal tax credit was cut in half.

Bernstein’s Sacconaghi sees a drop in the company’s deliveries in the first quarter of 2020. He thinks that the pull-forward in demand in the Netherlands, due to the EV tax change, led to strong deliveries in the fourth quarter. He thinks that Gigafactory 3 will have a negative impact on the company’s gross margins by 200–500 basis points in the fourth quarter.

According to the bears, the fourth-quarter delivery performance was due to changes in incentives for EVs in the US and the Netherlands. They’re concerned about the company’s margin substantiality amid intensifying competition and ramping Gigafactory 3.

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Analysts’ ratings for Tesla stock

Wall Street analysts have different opinions about Tesla stock. Among the 33 analysts that cover Tesla, 11 or 33% recommend a “buy” or “strong buy.” Meanwhile, nine analysts or 27% recommend a “hold,” while 13 analysts or 40% recommend a “sell” or “strong sell.”

Analysts’ mean target price on Tesla stock is $310, which implies a 30% loss from the current level.

Growth path

Analysts seem to have a diverse opinion on Tesla stock. The main concerns are the sustainability of the gross margin and pull-forward of demand due to changes in EV incentives.

Although these concerns exist, Tesla could overcome them sooner or later. The company is on an expansion spree. Tesla is setting up facilities globally to create local footprints. The company is ramping up Gigafactory 3 and starting Model Y—key growth drivers in 2020. Beyond 2020, the company’s Gigafactory 4, the launch of Cybertruck, the production of Model Y in China, and the production of Model 3 in Europe will boost its earnings.

Read How Is Tesla Stock Positioned for 2020? to learn more.


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