Why You Should Not Lose Confidence In Tesla Motors Inc (TSLA)?

Tesla Motors Inc (NASDAQ:TSLA) stock has fallen due to negative sentiment prevailing in the market. The reason for the sudden drop in stock price was the downgrading of the stock by Barclays. One of their concerns was that the company might fall short of its projected production level of 50,000 – 55,000 in the current year. Another concern was that the same assembly line is used for both Model S, as well as, Model X, which meant impacting the other production. This apart, hedge fund manager, Jim Chanos, has been shorting the stock. However, there is no reason to lose confidence in the stock on a long-term basis, even if the stock is richly valued.

Reasoning For Shorting

In a recent interview, Kynikos’ Jim Chanos explained the reasons for being bearish on the shares of Tesla Motors Inc (NASDAQ:TSLA). Of course, he has been a short seller on the company’s stock for two years and it was not clear when he will turn to long. However, he did not mind in praising the electric vehicle maker during the interview. He said that it is premature to offer a lofty valuation and needs a long way to go.

Chanos said that the company has got a very good product. However, it should navigate to a mass market automobile maker from being a small boutique and elite car maker. According to him, that is not an easy job. He said that it was not enough producing or selling 50,000 – 100,000 vehicles in a year if Tesla Motors Inc (NASDAQ:TSLA) wants to compete with General Motors Company (NYSE:GM) or BMW. He said that the company should start selling millions of cars to attract an adequate valuation. For that, it needs to go a long way.

Learning Curve

As far as the electric vehicle maker is concerned, it would be the qualitative assessment that scores over the quantities. The company is an innovative and ambitious one with a focus on quality. Until now, it focused on Model S only, which is more than the affordable one. Tesla Motors Inc (NASDAQ:TSLA) is concentrating on the premium segment and the latest one, Model X, is a sports utility vehicle. The company is planning to come out with Model three, which will be an affordable one, probably next year. Significantly, it took the time to ensure that its quality reached and established several charger stations before venturing into affordable one.

It could have been chaos if there were more affordable cars without backing up the charger stations. In the last few years, the company did well to establish several charger stations or strike an agreement for charging its electric vehicles to ensure consumers don’t’ get panic. Now, the time has come to launch the affordable car. Tesla Motors Inc (NASDAQ:TSLA) is establishing a Gigafactory to produce them. The company is learning the art of becoming a manufacturing firm. The company might continue to face challenges in achieving the targets promptly. Musk often sets lofty goals and aims for the sky.

Production To Grow

In five years time, the company is planning to ramp up its production by ten times to 500,000 from 50,000. That is not an easy job and depends on the timely ramping up of Gigafactory facilities. While it is quite possible to achieve it by the year 2020 subject to timely execution, there will be challenges ahead in meeting the targeted level. The possibility of taking a bit longer time cannot be ruled out given the problem Tesla Motors Inc (NASDAQ:TSLA) faced last in meeting the delivery schedule.

According to RBC Capital Markets estimation, the company might be able to deliver 460,000 vehicles while the Street analysts’ provided a range between 420,000 and 480,000 vehicles. That will mean Tesla Energy revenue between $1 and $2.5 billion. The company has a perfect plan though it might face challenges while executing them. At best, it might struggle to meet the deadlines or delay it meeting the deadline. However, there is nothing to suggest losing confidence in the company long run. Investors in Tesla are pre-paying for the future, and hoping the company exceeds these goals.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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