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Model 3 Will Discount Tesla: A Prime Buying Opportunity

Tesla Motors Inc (NASDAQ:TSLA) Model 3
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Buy Tesla Inc shares (NASDAQ:TSLA:TSLA) despite their current reduction in value. That is the advice of one respected Wall Street firm. Its analysts find favor in the stock’s potential and advise investors to do the same. This report covers the investor confidence inspired by the Model 3 sedan.

Tesla Inc investors must be infatuated with the Model 3 right now. The new electric sedan not only secures half a million reservations, but discounts shares as well. The next few weeks could be prime buying time for investors. Poorer than expected sales of the Model 3 stand to send NASDAQ:TSLA backwards in value.

The shares of Tesla Inc have gone up 60 percent this year. Speculation suggests there is a lot more upside for the stock. In comparison, the S&P 500 shows an index climb of only 12 percent.

The electric car maker’s momentum has slowed over the last three months. It is interesting to note, however, that this does not suppress the bullish views that some analysts have of the stock. In fact, an even greater plummet awaits Tesla Inc shares, according to analysts at Baird.

Tesla Motors Inc (TSLA) Tesla Model 3

In a joint report released this week, the firm alerts Wall Street about an imminent reduction in NASDAQ:TSLA shares. Not to fear, though, Baird is nothing short of excited about the buying opportunity brought on Tesla’s current stock price. By what was shared this week, investors ought to be frothing at the mouth over the incoming plummet in value. It will be brought on by a disappointing set of vehicle sales.

The Baird report covers predictions of Tesla Inc missing its sales promise. Share reductions seen at the end of the June quarter are proof of how touchy investors are about sales. That incident did not keep a lasting effect, though. Since then, shares have gone up and beat the highs of the second quarter. The last two weeks have although seen Tesla shares deflating steadily.

As the analysts claim, Tesla might be running behind on its Model 3 production goals. Chances are that the company will report a number considerably shorter than its 500 car promise. Baird pegs the incoming reports to show about 300 to 400 sales for the new sedan. At any rate, the investment firm admits that will remain an “aggressive buyer”of the stock.

The message sent out by the the Baird investment group encourages the purchase of Tesla Inc shares. Investors can infer an event similar to the share plummet at the end of the second quarter. A failure to meet vehicle production assurances will likely send NASDAQ:TSLA down even further. However, the shares will probably rebound to newer heights before the year is out.

Right now, investors are on the look out for a delivery report from the company. The firm does not release its car sales monthly like many other automakers. Instead, Tesla chooses to disclose them at the end of each quarter. Their isolation from the company’s quarterly earnings report renders them as a closely watched metric.

Wall Street can be sure that the incoming quarter will have a few hundred more Model 3 sales. This more affordable Tesla car officially rolled out at the end of July. It begins at around $35,000 and has a long reservation list reported last at 455,000 (and counting). But the Model 3 production ramp is only really expected to take off during the final quarter.

Model 3 Will Reduces Tesla Inc Shares

Bearing that, sales reports for the next quarter will reveal a much greater number in terms of Model 3 deliveries. The event would inspire confidence the company’s sales with an favorable effect on company stock, too.

The Baird analysts say the hardest part of the Model 3 ramp is probably over now. Expecting some kind of delay, they say Tesla “may be several weeks behind” on its September 30th production target. Elon Musk has predicted the production of about 1,500 Model 3 sedans.

Tesla has shot up as much as 68 percent this year. This is in spite of the numerous disappointments it has shared until now. They include the earlier sales disappointments for the first two quarters, autopilot safety concerns, and a delay in the company’s truck unveiling.

Read: Risk Warning: Buy Tesla, Inc. (NASDAQ:TSLA) and Cry Over Losses

The stock finds itself labeled as an investment bargain when its value retreats. Brokerages and hedge funds anticipate as much as a $430 stock value in the near term. Baird is among the Wall Street watcher in favor of Tesla’s share potential. The company encourages investors to capitalize on any “weakness caused by a minor delay” in production upscale.

This quarter, the average expectation for Tesla’s sales volume sits at about 25,000. Baird is a bit more optimistic than most. They look forward to more than 15,000 Model S sales, almost 11,000 for the Model S, and 500 for the new Model 3.

This week’s report is are assertion of bullishness for Tesla. The last 10 trading days have only seen shares fall in value. As of September 30th, Tesla Inc shares have seen 2 weeks of straight losses.

Worse News About Tesla Inc Shares

“Structurally unprofitable” — those were the words used by a Wall Street investment champion. He does not buy into the whole Tesla fanfare. This week he points out that the company promised it would already be profitable by now. Jim Chanos shares his take on Tesla’s business model.

Chanos recalls the young automaker promising profits in three years’ time. That was back in 2014. “Now it is supposed to be making money in 2020,” the analyst said this week. He is certain that Elon Musk and his EV business is only stringing investors along. According to Chanos, the year 2019 will no doubt see the company promising profits at a much later year.

While speaking to CNBC this week, Chanos cited a few other deterrents. One, for instance, is the company’s purchase of SolarCity Corp. The controversial merger opens up a loss of $1 billion per year, he said.

Beyond that, the electric car market is widening. Chanos says the company’s leading Model S and Model 3 will soon find themselves pitted against EVs from automakers that actually have money in their pockets.

Tesla Inc shares, according to Chanos, are propelled by hopes and dreams. He bets against the stock, and advises others to do the same.

Read: Blind Trust Makes Tesla, Inc An Overblown Risk (NASDAQ:TSLA)

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Mvusi Ngubane

4 Comments

  1. New manufacturing processes, like that of Tesla’s Model 3, generally take a few years to develop and establish and refine their manufacturing technologies. Over this period manufacturing costs will drop dramatically. If well managed, relative costs might start in year 1 at 50+50 (raw materials and outside manufactured components + manufacturing and assembly costs), in year 2 be at 45+25, in year 3 be at 40+15… and in 4 to 5 years get to 30+10. This 30+10 cost being 60% less than the year 1 cost. I have seen this kind of cost reduction firsthand in a large manufacturing operation. With relentless improvements to ,manufacturing technologies and with relentless cost cutting I have seen a 90% reduction in manufacturing costs across a 15 year period. I fully believe the same can be done in the manufacture of EVs. The biggest question: does Tesla have the wherewithal to do this? The second biggest question: Can Tesla keep its lead in manufacturing technology and with it beat out its competitors via having the the lowest manufacturing costs?
  2. Jim Chanos is wrong about Tesla. With a 27% margin on Models S and X and a target of 25% gross margin for Model 3 in 2018, Tesla could be profitable now if it slowed its growth. When that growth slows, which could be 10 or more years from now, Tesla will be a very profitable company. The competition is years behind Tesla and Tesla is widening the gap. Who has superchargers? A gigafactory for batteries?
  3. Tesla/SpaceX/Boring Company is a growth-at-all-costs company, with an immensely ambitious agenda (saving humankind from its own follies). Being profitable is not a major part of the picture, except inasmuch as it may help further growth. Amazon worked in much the same way for many years, immediately reinvesting all income into its business and showing losses upon losses. Nothing wrong with that, as evidenced by Amazon today ;-) As to competition, none of the major western and Japanese car makers is even close to ready to commit to producing EVs at scale — it’s been all talk and minimal compliance so far, with a lot of vaporware. (Only the Chinese car manufacturers, such as BYD, are taking full EV transportation seriously.) There is no serious competition for home electrical storage either and Tesla’s solar roofs are way ahead of everyone else for solar power generation in urban/suburban settings. Tesla will have these fields to itself for at least 5 more years, plenty of time to sell cars aplenty, along with solar power and electrical storage, and to establish itself as the top brand in energy and transportation. It’s hard to imagine a better long-term investment… Pessimists seem determined to ignore the fact that Musk did in just a few years, not just exactly what he had planned, but also what nobody thought was possible: to build from scratch a major car company (all while also developing the most successful satellite-launching program since the early days of NASA). We would be well advised to assume that he will continue to deliver.
  4. Chanos can suck on a Tesla supercharger. Seriously, the man can walk up to a station, pull out a plug and put his mouth on it. “Structurally unprofitable” seems far fetched. Tesla is prone to make losses, sure, but profits will come and they will be great. It’s about laying down the foundation and Tesla is doing just that. I love my Model S and the conveniences it offers.

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