Market Overview

7 April 2021

Tesla May Have the Chance to Return to $830 or Higher Even in a Short-Term

A California-based trending producer of electric vehicles, Tesla officially reported its record 2021 first quarter deliveries at the very end of last week. Despite the ongoing worldwide shortage of semiconductor components, which was recently seen to be one of the reasons for the correction of Tesla shares down to $597.95 per share, demand for the advanced Model Y of the automaker has remained high since mid-January, especially from China and other Asian countries. This hunger drive had allowed Tesla to deliver nearly 185,000 vehicles for the first three months of the year, which was about 4% higher than the average market expectations of 177,822 vehicles. The company said in a statement that it was “encouraged by the strong reception of the Model Y in China and are quickly progressing to full production capacity.” Tesla sold only 88,000 vehicles in the first quarter of 2020, a period troubled by pandemic-related factory shutdowns, and nearly 500,000 vehicles in the course of 2020. 

The announced information was seen to immediately sent Tesla shares up over the same 4% on Monday, just on the first Wall Street's trading session after the long Easter holidays. The capitalisation of Tesla added 14.8% altogether since March 30 on positive expectations as many in the market continued to use the general "buy on dips" strategy. For now, Tesla stocks just slightly exceed the $690 level, which is still much lower than the January's high of more than $900 per share. But the positive development of the fundamental situation around the company contributes to the base scenario for the nearest month with a gradual return of market rates to testing the upper levels. 

Overall market sentiment with a new spurt of big tech stocks like Apple, Google and Facebook this week, as well as the entire tech-heavy Nasdaq 100 index, and with the broad-market S&P500 at historically high levels well above the 4,000-points psychological mark, is also buoying the "bullish" enthusiasm for the particular Tesla case. However, there could also be specific competitive advantages for Tesla in the context that Elon Musk's brainchild is one of the clean energy companies. A significant driver for the U.S. economy right now is a fresh stimulus package promoted by the White House administration. It is designed to support the pace of recovery but with the top accents of Democratic agenda to address climate change, including tougher standards for cleaning up emissions. The key element of the "green" initiative embarked by Joe Biden and Co is to push the American population to purchase more electric cars than traditional gasoline-based autos, which obviously plays into the hands of Tesla. 

The regulatory emission credits help to improve Tesla financial results with a solid portion of income. Tesla, with an all-electric vehicle line-up, receives a lot of these credits. Since credits are tradable, the company sells its surplus to other automakers that are not so environmentally friendly and, therefore, don't have sufficient credits. No costs are associated with that process, making this pure contribution to regular profits for Tesla. In the fourth quarter of 2020, Tesla's revenue from regulatory credits was $401 million, which is less than 5% of its total top line. This is up from $133 million from the same period last year but it is in line with $397 million in the third quarter. Maybe it is not a significant portion of the total company's revenue, but it is a great deal of Tesla's pure income from all its operation activities, which was $575 million in the latest quarter. 

The "green" agenda is able to maintain the validity of the emission credits for a longer period, if not to increase their size over time, while the company's own profit from trading electric cars is clearly going to grow further. For this reason, although analysts of various funds make a wide variety of forecasts for hyping Tesla shares, with a spread ranging from an ultra-sceptical $300 per share to a stratospheric $2000 per share by the end of the year, the widely replicated forecast of Dan Ives at Wedbush Securities at least deserves close attention. 

On Sunday, Dan Ives upgraded Tesla stock to the equivalent of buy, from neutral forecast before, and raised his price target on the stock to $1,000, from $950. That implies a potential upside of more than 35% over current prices. Wedbush Securities' analyst also raised his long-term “bull case” on Tesla to $1,300. “In our opinion, the 1Q delivery numbers released on Friday was a paradigm changer,” he said in a note. “We now believe Tesla could exceed 850k deliveries for the year with 900k a stretch goal, despite the chip shortage and various supply chain issues lingering across the auto sector,” Ives wrote. He added “eye popping delivery numbers coming out of China cannot be ignored with the trajectory on pace to represent ~40% of deliveries for Musk & Co. by 2022.” Pinchas Cohen, an analyst at Investing.com, believes that the milestone of $830 per share could be taken in less than a month. 

Both of them joined the choir of praising Tesla’s sales. Analysts at JPMorgan said they expect total deliveries of 800,000 Tesla vehicles this year, 1 million in 2022, and 1.23 million in 2023, “which is modestly below” consensus estimates due to “growing competition,” they remarked. Jeffrey Osborne at Cowen highlighted Tesla’s first-quarter production numbers. “We were pleased to see production at 180,338 for the quarter, suggesting that the lingering semiconductor shortage plaguing other auto OEMs is not affecting Tesla in a big way despite the two shutdowns at Fremont [factory] in February,” he said. Osborne also raised his price target on the stock, to $573 from $545, which is still lower than the current levels. Thus, relative Tesla sceptics also have to raise their forecasts, not to mention Tesla optimists.

 

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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