Tesla [TSLA] drove a rocky path in 2019. In June, its share price dropped as low as $178.97, as investors feared a slowdown in vehicle sales in the face of faltering Chinese demand. A company-wide cost-cutting programme also raised liquidity fears.
Indeed, in May the company announced plans to raise $2.3bn through bond and share sales to, according to Hargreaves Lansdown, “keep things ticking over”.
Its share price has turned a corner since, ending 2019 up by 37%, boosted by a surprise return to quarterly profit in October. Things revved up even more in the first few days of the New Year when the company announced a best-ever quarterly vehicle delivery performance of 112,000 units in the last three months of 2019.
New year, new ambitions
Tesla delivered 367,500 vehicles in the whole of 2019, 50% more than in 2018 and beating the low end of its forecasts and Wall Street expectations.
Number of vehicles delivered by Tesla in 2019
Future prospects look solid with government incentives to support electric vehicle demand continuing in many parts of the globe, including Germany where Tesla has announced it will begin construction on a new production facility in 2021.
It has also recently lined up $1.6bn in new financing from a consortium of Chinese lenders for its Shanghai Gigafactory. Tesla states that over 1,000 saleable vehicles have already been produced at the site and has indicated a 'greater than 3,000' unit run capability. The facility allows the company to avoid shipping costs and tariff volatility.
There are roadblocks for the group, however, including the ending of US tax credits for its cars in the US and potentially further reduced demand in China. The mean consensus of analysts, according to MarketScreener, is a hold whilst the average price target is $332.78.
Is Tesla’s share price going up a gear?
Some more bullish analysts have been buoyed by the recent results. Last week, Canaccord Genuity raised its target price by over $100 to $515, stating that the shift in demand to electric vehicles will pick up pace in 2020.
“While bears have feared demand issues as a function of tax credit expiration for Tesla, we suspect a solid fourth quarter should put these fears to rest,” said Canaccord analyst Jed Dorsheimer. “EV demand remains strong for Tesla and it is well-positioned for 2020 with continued positive momentum in all business areas. The production woes of the past have been rectified.”
Dan Ives, an analyst at Wedbush Securities, described the delivery performance as another “major feather in the cap”.
He said: "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."
Ives, who holds a neutral take on the stock, also expressed some caution. “Many investors remain snake-bitten by this stock. Every time optimism grows, and it looks like bright skies over Fremont, unfortunately, some negative variable has come out of left field and created an overhang on the story,” he said.
He has concerns over the “swing factor” of Chinese demand, the group’s high debt burden and the need to generate consistent free cash flow and profitability.
|Return on Equity (TTM)||-10.45%|
|Quarterly Revenue Growth (YoY)||-7.60%|
Tesla share price vitals, Yahoo Finance, 6 January 2020
Is it time to buy Tesla?
According to MarketScreener, analysts surveyed by FactSet believe Tesla will reveal another profit for the most recent quarter when it releases figures – Tesla is expected to report its earnings on 29 January. This should give more hope to bulls.
David Whiston, an analyst for Morningstar Research Services, said: “If they do that for a few straight quarters, the stock could go far higher than it is now. The downside to a stock rocketing upward is the slightest bit of bad news could cause an abrupt fall, but no one ever cares about that risk until it actually happens."
Garrett Nelson of research firm CFRA certainly refuses to get too carried away.
“Sales were boosted by customer purchases ahead of its federal EV tax credit expiration. Questions remain about first half 2020 results and gross margin sustainability,” Nelson said.
“Sales were boosted by customer purchases ahead of its federal EV tax credit expiration. Questions remain about first half 2020 results and gross margin sustainability” - Garrett Nelson of research firm CFRA
“We point out that Tesla is already lowering prices in China and faces a flood of EV competition in the U.S with at least 25 new models debuting this year with most eligible for the full $7,500 tax credit,” he added.
Overall, however, there are positive tailwinds for Tesla as environmental regulations and consumer attitudes begin to increasingly favour the switch to electric vehicles. Geopolitical tensions, namely between the US and Iran, may also see oil prices rise higher in 2020 – further boosting the appeal of electric.
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