Tesla (TSLA) stock has been on a tear lately. Monday saw an increase of 3.69% in the share price to close at $215.15. The stock had been as low as $143.67 on February 10th. That is truly a lot of movement in just a bit over a month.
Most analysts maintain a hold rating on Tesla stock after concerns about the production of their new SUV the Model X. Even Elon Musk had admitted that the company became overzealous and overconfident in their ability to pull of what is one of the most complex vehicles ever produced. If you haven’t see the x-wing doors in action or heard of the bioweapons grade cabin air filtration system, they are a sight to behold.
So what is behind the current climb in the value of the stock and is it sustainable?
The current ascent is mostly due to a vehicle that no one has seen yet, the Model 3. Tesla is aiming to have the EV for the rest of us on the market by late 2017. The unveiling will happen toward the end of March and is really pushing the stock higher as Tesla prepares to show what will be its foray into mass market production.
Another factor that might not often be mentioned is that Tesla is killing every other auto manufacturer in sales of large luxury cars. Even the Mercedes S-Class (21,934 sold) can’t touch the Tesla Model S (25,202 sold) in sales. Along with domination of sales in the luxury market, Tesla enjoys profit margins of 18% on vehicles. It isn’t surprising to see Tesla dominating when one realizes that a large luxury sedan that hits 0 - 60mph in a blazing 2.6 seconds (as recorded by Road & Track magazine) is worth coveting.
One factor that is crucial to Tesla’s success with the rollout of a mass market EV is the cost of the batteries that power it. The ramp up of its new Gigafactory in Reno, Nevada is already producing returns in dropping the cost of batteries to $150 - $200 per kilowatt as compared to $350 per kilowatt in the general market. To make the Model 3 at a $35,000 (possibly $25,000 cost to the consumer with tax credits) price point will require meeting Tesla’s goal of $100 per kilowatt and it seems they will certainly do it.
The Model X SUV, that had previously seen production issues, is rumored to now be rolling off of the production line smoothly. This should provide another substantial boost to the company financially as it bumps up delivery of vehicles.
So there is quite a bit going right for Tesla currently. The stock is still very expensive when compared to traditional automakers but one could argue that this is not a traditional automaker and the high price is justified when considering Tesla as a growth stock.
Still, the recent jump is mostly based on a car that no one has seen yet and could just be unveiled as a drawing at the end of this month. Many analysts argue that the Chevy Bolt EV, that will match the Model 3’s 200 miles per charge, is already winning as it is slated to roll out of the factory this year.
The zenruption team believes there is one thing that Chevy can’t match in the Tesla Model 3. The fact that it simply is a Tesla sets it apart. How many people have seen a seen Model S driving around town and secretly felt explosions of desire? If they are like our team, then the answer would be almost all of them. That regular consumers are getting ready to put down a $1000 deposit on a car they won’t see for over a year speaks volumes for what the Model 3 could mean in the marketplace.
As Tesla lowers the cost of its batteries and further refines its manufacturing operations, it seems that the Model 3 will be the hit that propels the company into profitability and challenges all of the traditional models of how a car company is started. The zenruption team feels it is safe to say that the current run up in the stock price is warranted and that it could have legs for another 30%.
Lina Martinez is a zenruption contributor to our money and life sections. She is super excited for the Model 3, but then so is the whole zenruption team. We are currently contemplating a Model 3 roll out party with some of those cute little sandwiches that taste so good.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license
