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introduction
As for Tesla (TSLA), it's easy to be skeptical. The roar of bears can be frightening, especially when compared to the bellows of bulls. Over the past three months, Elon Musk's behavior may be blamed for the performance of the action. However, I have never seen a company receive so much pessimism after increasing unit sales by more than 100% qoq.
Last year, Tesla seemed unstoppable. Its stock has come close to the $ 400 electrified by many promises such as fully autonomous vehicles, profitability, a model 3 of $ 35,000 and 500,000 units per year. All this was supposed to have happened now, but the timeline of these steps (minus profitability if you're optimistic) is still questionable. The only constant we know, is that the auto industry is more difficult than what Elon Musk had imagined. However, while Elon Musk was sleeping at the factory, the competition was sleeping at his desk and suddenly Tesla was a real car company. Tesla has gone from selling on the entire luxury sedan market to all sedans, with the exception of the first four, Accord, Civic, Camry and Corolla in a month. This has happened with a $ 49,000 price tag, no advertising and a direct sales model to consumers that are banned in some states.
Sales soar, Model 3 diversifies
In August, it is estimated that Tesla sold 17,000 Model 3s, 75% more than the 2-5 Series BMW sedans, which finished in second place with 9,700 units. The Model 3 is actually twice as expensive as the Japanese luxury sedan market in the United States, which includes Lexus, Infinity and Acura sedans. A month later, in September, sales surged and it is estimated that the Toyota Corolla has become the fifth most popular sedan in the United States, behind the Civic, Accord and Camry. Although these figures may have been difficult to digest by myopic bears, they are simply staggering. Many argue that demand is collapsing, but the fact is that: Model 3 costs twice as much as the base prices of Corolla, Camry, Civic, and Air Canada. Agreement, does not use any advertising and direct selling is prohibited in some cases. States.
It was clear that a 200-mile model at $ 35,000 would affect the entire ICE sedan market, no one suspected that a $ 50,000 3 model would be close. Even with 310 miles, you buy a $ 50,000 sedan; electric or not, it's expensive. We could buy a luxury SUV at this price. Knowing that a cheaper model is on the way, those who pull the trigger now are simply early adopters, who do not usually include the masses.
Model 3, worth $ 35,000, is still "in 3 to 6 months" according to its site, but in response, Tesla has diversified its model 3 offering with a mid-range pack offering a autonomy of 260 km. At $ 45,000, it's $ 4,000 less than the long-range RWD pack without options (only available in the menu at the moment).
A controversial topic is the removal of the option to pre-buy, for a discount, the possibility of one day update your model 3 to be completely autonomous. Elon Musk declares that he is still available "off menu"And it's to reduce confusion, but it's more confusing for those who know the functionality." Especially when skeptics point out that the tens of thousands of Model 3s sold may not be completely self-sufficient after all Indeed, Elon Musk admitted that the complications Full autonomy is difficult, but 100 to 200 stations have already been tested to test Tesla's automatic driving technology.We also know that Tesla is considering using a new chip, easily evolutionary to current models, which will improve system capabilities.It is still too early to know and, whether this happens next month or in 2020, the most important factor is whether the Teslas sold today are actually able to operate fully autonomously.If so, by the end of 2019, even at the current rate of production, there will be hundreds of thousands of Tesl have on the road capable of total autonomy, be well over a million by 2020. If the current vehicles sold are not capable of complete autonomy, there is a big problem. can do is wait and see; Perhaps if Tesla reassures investors and consumers that full autonomy is still possible, some relief would be brought.
The bullish case
Earlier this year, Netflix (NFLX) was in fashion. For years, its stock has increased every time profits have been beaten, but in January it has exceeded estimates and more than doubled in six months. For a time, he was the largest media company in the world. Last Wednesday, Netflix far exceeded estimates and its shares climbed up to 15% in after-hours trading. However, growth was not as impressive as in January; Moreover, with virtually no profit and a fear of competition, investors have been skeptical. Since Monday, these gains have been erased when they were more than 20% lower than the 52-week highs.
I mention Netflix because investors are more sensitive to potential growth than to actual results in today's market. The same can be said for Amazon (NASDAQ: AMZN), AMD, Square (NYSE: SQ) and others. When investors realize growth potential, valuations increase many times faster than real growth, but as we have seen, it is unsustainable. With time and continued growth, unprecedented new highs could be achieved, but this will depend on actual performance. If growth slows down, valuations could collapse like SnapChat.
When Tesla announced its second quarter results, all investors were concerned about:
We still expect to achieve GAAP profitability in the third and fourth quarters. In the future, we expect Tesla to achieve sustainable quarterly profits.
Tesla burning money much faster than he could restore it, this news was a haven for worried investors. Tesla soared, but unfortunately, Elon Musk alone destroyed Tesla's rating with a tweet that was the icing on the cake of bad behavior. Fortunately, a settlement has been reached, but with profits coming in a week or two, investors are likely playing a "wait and see" game. If Tesla is profitable for the second quarter of its history while reaffirming its ability to do so, the title could skyrocket and reach new record highs.
The bears look from all angles and you can read the comments for more examples. Although there are always two sides to a trade, bears are always stronger than bulls. Again, you can see it by browsing through the comments, but Tesla's premium evaluation tells a different story. Investors see it as a significant advantage in making it the most valuable automaker in the United States, even though it is heavily in debt, that it is missing all the maturities, that it does not. has only one profitable quarter in its history and that it is tiny from a manufacturing point of view. In February, Tesla achieved its production target of 300,000 units. Based on its quarterly sales reports (153,000 cars in the first quarter), it must have passed the 400,000 mark in lifetime production in the last quarter. In comparison, this is not even half of what Toyota produces in a month. For investors, this does not matter. All they need is to realize the potential growth to be able to participate.
Tesla's production rate is growing and at the present time, the biggest wonder is whether Tesla can produce the standard 3-tier model of $ 35,000 with a profit. Many bears say that the demand for Model 3 is declining and that it has released Model 3 of $ 45,000 to compensate for this. Is this surprising? Not really. Until this new build, Model 3 cost $ 49,000 and when people think of Model 3, they think $ 35,000. At $ 45,000, Tesla is opening up more prospects, but the bears are again announcing that margins will go down as the reduction exceeds the estimated savings of less battery cells. I'm sure Elon is dying to tweet the truth, but these tweets are probably not approved by the board of directors. We will just have to wait and see.
When investing, it is important to think long term. The first investors do not blame Amazon and Netflix for achieving the breakeven point of its business in order to grow. If Tesla can produce a model 3 and sell it while breaking even, that would be astronomical. The title of Tesla would soar, it could cover its convertible notes that were soon to arrive and it could even open the door to more capital if needed. It would no longer be a business raising funds without showing anything. Although Tesla reiterates that he would not need to raise additional capital, I would not be surprised or against him to do so to accelerate growth.
Conclusion
If you are skeptical about Tesla, it is really best to wait and see. If Tesla exceeds expectations, its valuation could go beyond reason; it can be like watching Netflix or Amazon: attractive growth, unattractive valuation. However, some issues need to be resolved, such as the timelines for Model 3 and fully autonomous vehicles. There are also concerns, such as its 10,000 compressor stations and a restricted service network compared to 400,000 Tesla and more on the road. As a result, diving into this one before gains could be risky. Since I believe that these problems can and will be solved, I am willing to pay before the gains. Once Tesla has cleared his model 3 problems, anything that has been wrongly adjusted can be brought back.
On the other hand, in this video, I describe in detail the benefits that Tesla has over the competition through its direct-to-consumer model and how its success could be something that manufacturers simply can not replicate. A more detailed article will be published by the end of the week. Thank you all for their support.
Disclosure: I am / we are long TSLA.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.
Additional disclosure: Additional Information: I have long been Tesla via stock and options. I am currently running Netflix via long-term put options.
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