Tesla (NASDAQ:TSLA) looks poised to ramp up again soon. The Palo Alto, California-based electric vehicle (EV) firm recently reported a record quarter in terms of cars built. Now, it looks poised to resume hiring and take production to record levels. This has sent TSLA stock more than 23% since early June, compared to a 8.9% gain in the Nasdaq Composite index.
Although risks remain, the company has positioned itself not only to return to profitability but also to bring itself further into the mainstream as it takes Tesla stock back to all-time highs and beyond.
More Workers Making More Cars
TSLA moved higher in Wednesday trading following a release by Bloomberg of an internal email that told employees that the EV maker is “making preparations” to increase production at its Fremont, California assembly plant following a quarter of record deliveries.
Despite job cuts in recent months, Tesla has begun to increase hiring both in Fremont and at its Nevada battery factory. This comes on the heels of a report that the company produced 95,200 vehicles in the second quarter. Of those, 77,550 of the deliveries were Tesla’s lower-cost Model 3. Between these improvements and the construction of its factory in Shanghai, Tesla is poised to grow beyond the estimated 400,000 deliveries it expects to make this year. Still, this meant sales of the pricier Model S and Model X have declined. That slippage is creating profitability concerns among some investors.
Estimates Again Moving Higher
However, for the first time in months, the profit outlook has improved. After months of declining estimates, consensus losses for 2019 rose to $1.68 per share, up from a loss of $1.79 per share estimated last week. For 2020, profit estimates now stand at $5.05 per share, up six cents per share from last week’s consensus estimate.
This 2020 profit estimate gives TSLA a forward price-to-earnings (PE) ratio of around 46.5. Analysts also project that profit growth will average 114.3% per year over the next five years. If these numbers can hold, I think Tesla stock can move much higher.
Moreover, the company expects to open its Gigafactory 3 in China late this year. They plan to produce about 150,000 next year in the factory’s first phase. As InvestorPlace contributor Faisal Humayun wrote recently, this new factory will produce the Model 3 at a 50% lower cost. That would also make Tesla much bigger in China than homegrown electric cars such as Nio (NYSE:NIO).
Don’t Ignore Tesla Stock Risks
Still, investors should remain mindful of risks. The current economic expansion has entered its 11th year, with recession talk getting louder every day. Also, Tesla’s $42 billion-plus market cap takes it ahead of Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU) and fueling valuation concerns. Moreover, the trade war between the U.S. and China lingers on; Gigafactory 3 will mitigate the direct effects on TSLA. However, the economic slowdowns that come with trade wars could affect sales.
Then there’s Tesla’s unique risk factor: The eccentric behavior of CEO Elon Musk. As recently as a few months ago, profitability had slipped away, and Mr. Musk cut the size of his workforce. Reversing course so quickly may have inspired investors. However, the continued course corrections don’t breed feelings of stability.
Still, with production levels set to reach 500,000, Tesla has shown that it will probably not become the next DeLorean Motor Company or Fisker Automotive. With its massive growth and viable path to profitability, TSLA looks poised to set new highs sooner rather than later.
Bottom Line on TSLA Stock
Although risks remain, TSLA stock looks poised to continue its recovery. As recently as a few months ago, Tesla appeared troubled as its prospects to earn a profit melted away, and the company began to let workers go.
However, record auto production and a signal that Tesla will ramp up both production and hiring have brought new optimism. Moreover, the new factory in Shanghai will likely help Tesla side-step the trade war and bring a record number of cars to market. Yes, either the economy or the mood of Mr. Musk could derail this move higher. However, if the company can live up to analyst expectations, TSLA stock has nowhere to go but up.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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