Daily Management Review

Investors Bet On Model 3 Success Resulting In Rise Of Tesla Shares


08/03/2017




Investors Bet On Model 3 Success Resulting In Rise Of Tesla Shares
As Tesla Inc ramps up production of its mass-market Model 3 sedans, investors continued to bet on CEO Elon Musk's ability to successfully take the company out of "manufacturing hell" which resulted in Tesla's shares rising 6 percent on Thursday.
 
$3.2 billion is set to be added to Tesla's market value by the gains in the high-flying stock which has already risen 52 percent this year.
 
After Musk warned that the automaker could face six months of "manufacturing hell" as it goes full throttle on Model 3 production, the stock had taken a hit on Monday.
 
It was receiving more than 1,800 daily reservations for the Model 3, its newly launched mass-market sedan, Tesla said during its quarterly results announcement.
 
To help it transform from a niche player to a heavyweight in the automobile industry and to help it turn profitable, the company is counting on the $35,000 Model 3.
 
"We believe a positive reception to the Model 3 from early customers could significantly increase the value of the Tesla brand and further accelerate demand," Baird Equity Research analyst Ben Kallo said.
 
Price targets on the stock were raised by at least two brokerages. Pushing it well ahead of the median price target of $322, RBC Capital Markets raised its target price by $31 to $345.
 
But challenges that Tesla needs to overcome mostly are related to production delays and funding issues.
 
With a price tag starting around $80,000, the luxury Model X SUV which was launched by tesla in 2015, had several production problems.
 
By saying that a simpler Model 3 design will greatly reduce potential assembly-line problems, Musk has tried to reassure investors.
 
"While we don't have meaningful reason to doubt that Tesla can eventually achieve its targets, doing so in a timely manner without some growing pains could prove challenging," RBC Capital Markets analyst Joseph Spak said.
 
The shares of the company rose after revealing more than 1,800 daily reservations for the Model 3 and predicting increased Model S deliveries in the second half of 2017, even though on Wednesday, it reported quarterly revenue that doubled and a loss that was the electric car maker's largest ever.
 
Still, the the possibility of continued cash burn is high given the continued build-out of the Fremont factory and Tesla's Gigafactory battery plant in Nevada. Teslas’ cash cushion could be eroded to about $1 billion as the company said it plans $2 billion in capital expenses in the second half of the year.
 
However, the company was considering debt to expand cash on hand, "but not thinking about a capital raise", Musk told analysts on a conference call.
 
Amounting to over $100 million per week, Tesla's spending was at "historical highs," Chief Financial Officer Deepak Ahuja said.
 
About concerns that Tesla would fail to reach its production target of 10,000 vehicles each week by the end of 2018, Musk said investors should have "zero concern".
 
Musk's strategy to transform the low-volume automaker into a clean energy and transportation company is what the bullish investors are betting on. The company plans to offer large-scale battery storage, rooftop solar energy systems and electric semi-trailer trucks.
 
(Source:www.reuters.com) 






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