Tesla’s (NASDAQ:TSLA) Future Is Not Secure Yet
Following Tesla (NASDAQ:TSLA) and Elon Musk has been Wild, that will not change in the foreseeable future.
Last week stronger-than-expected Q-3 results relieved some of the pressure on the company and its deposed Chairman, Elon Musk, after a turbulent several months.
In early August Mr. Musk smothered the company in the ‘420’ controversy after he said he had “funding secured” to take the company private, a statement that regulators contend was false and misleading. And that Mr. Musk said was “worth it.”
The fledgling EV maker posted Quarterly profits and positive cash flows, which helped drive its stock higher in the wake. Strong sales of the M-3 sedan, delivered strong revenue. The company did hold down expenses in the Quarter, though that is likley going to be hard to sustain as Mr. Musk intends to expand fast.
So, yes, Tesla is making some visible progress, but there are fundamental questions that are unanswered.
The Big Q: How much demand is there for a high-priced electric sedan?
The Big As:
Tesla sold 56,065 M-3’s during Q-3, making it 1 of the Top selling passenger cars in the US during the frame ad at nearly average price of $59,000 the most expensive. The price was high because Tesla is selling it ‘everyman’ car with premium features.
Unfortunately for Tesla, the demand for sedans is plunging, which undercuts Mr. Musk’s argument for why a large market exists for the M-3. Tesla may well find itself fighting for a share of a shrinking market.
The company plans to offer lower-priced M-3s but selling them with a high price tag bolsters profitability. Tesla’s gross profit on the M-3 is around $13,000. That is important because the company needs cash to finance an increase in M-3 production that is necessary to satisfy the surge in demand that will, in Mr. Musk’s theory, materialize when Tesla offers a price cut.
Not likely however, leaving Tesla in a tight market niche. If demand for higher-priced M-3s comes in below expectations, Tesla again will have to tap its dwindling cash pile, raising concerns about its overall financial health.
Tesla is selling a $46,000 version of the M-3 with a less powerful battery that allows the car to be driven for 260 miles before a recharge, rather than the 310 miles possible with the higher-priced models. Tesla then plans to offer a $35,000 M-3 in Y 2019.
The Big Problem: The cost of making M-3s exceeds $35,000.
Wednesday, Mr. Musk said it is Tesla’s goal to get the figure down to $30,000 or below but consistently making big efficiency gains is not easy. If Tesla struggles to produce a $35,000 M-3, its strategy of broadening its customer base will be in doubt.
Then what happens?
Mr. Musk could go out and raise billions of dollars of new money in the markets, could is the control word here.
And we here at Heffx-LTN, like other Wall Street analysts expect such deals to be approached.
Wednesday, Mr. Musk, who has said he does not need new money, sounded more receptive to the idea of raising new cash. And if the share price stays high that could happen.
But the bottom line is Tesla would still needs to sell a lot more EVs into a shrinking market.
|HeffX-LTN Analysis for TSLA:||Overall||Short||Intermediate||Long|
|Neutral (0.23)||Bullish (0.27)||Bullish (0.42)||Neutral (0.01)|
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