Tesla’s Performance Beats all Market Averages
On April 10th 2017, Tesla’s stock reached an all-time high of USD 312.39 per share which was about 12 percent hike in its share price from the closing price on 31st March 2017 of USD 278.30 per share. After falling a few steps back through the month of April, the stock got back to testing new highs by closing the trading day on April 25th at USD 313.79 per share. With this new high, Tesla’s year to date gain in the stock market has been about 46 percent. This gain towers above the S&P 500 index which has a recorded a gain of about 7 percent year to date; and NASDAQ which has recorded a gain of about 14 percent year to date.
The upward trajectory in the Tesla stock started when the company reported higher than expected first quarter deliveries. Tesla uses its deliveries as proxy to its sales projections. Analysts at SaxonTrade attributed the higher than expected sales projections to potential improvements in Tesla’s manufacturing processes, after fixing a few kinks in its production chain. Wall Street on the other hand interpreted the higher than expected deliveries from Tesla to be a sign that the company is on track to producing its first few Model 3 sedans in July 2017 as earlier on promised.
The Model 3 sedan is at the core of the company’s expansion plan; with a price tag of about USD 35,000 and targeted for the masses. Other expansion plans for Tesla include launching new electric passenger and commercial vehicles as well as selling solar roofs. The company also aims at expanding its production capacity to start producing cars at an annual rate of 500,000 cars by the end of next year.
End of the rally for Tesla?
Even with the above exemplary performance for Tesla stock, there are some investors and analysts who are of the opinion that Tesla might not be the best stock to buy or hold going into the future. Famous investors such as David Einhorn have been betting against the company and are now feeling the pain with the rally in Tesla’s share value. However, David Einhorn still holds his short position in Tesla. In the first quarter of the year, Einhorn’s Greenlight Capital funds had a return of about 1.3% as compared to S&P 500 that returned 6.1% for the same period. Einhorn was quick to credit a short position in Tesla (TSLA) as one of the fund’s “biggest losers” during the quarter.
Bank of America Merrill Lynch cast a gloomy future on Tesla shares in its latest note to investors. The investment firm cut its price forecasts for Tesla on the grounds that the electric car company “long-term viability” has been exposed to greater risk after the acquisition of SolarCity. Tesla CEO and Chairman, Elon Musk is also the chairman of SolarCity; which is solar company founded by his two cousins Peter and Lyndon Rive.
Will Tesla Stock Preform as Analysis Predicted ?
From their analysis, the investment bank now believes that Tesla stock will drop by about 50 percent in the next 12 months after the acquisition of SolarCity. This fall in share price is attributed to shake-up in the fundamentals of the business; with “positive earnings and cash flow now even more elusive” in light on the new combination. Despite growth in its revenue figures, SolarCity has continued to struggle financially; while Tesla has been burning a lot of cash in pioneering the electric car market. The combination of the two companies therefore creates a dim picture into the future of Telsa in terms of cash flows and earnings.
Solar City Acquisition
John Murphy, a research analyst at Bank of America Merrill Lynch said in a note to investors that, “We believe the SolarCity acquisition introduces material risks to the longer-term viability of TSLA, while the recent capital raise only serves to further dilute potential shareholder value.” Murphy gave an underperforming rating to the Tesla stock; and projected a 46 percent drop in share price between now and the end of the year 2017.
In November 2016, Tesla and SolarCity shareholders voted to approve the acquisition of SolarCity by Tesla for USD 2.6 billion. This was viewed as strategic acquisition of a key player in the clean energy sector in the US and hence a positive move by the two companies. However, analysts seem to be of the opinion that the poor company fundamentals of the two companies will ultimately drag their overall performance to the negative; and hence mark the end of the rally in the Tesla stock that has been experienced since the beginning of the year.
Tesla Motors and Solar City and the Elon Musk Empire