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Can TSLA's Drive Continue?

Daniel Laboe

Everybody's favorite electric vehicle (EV) stock is at it again, driving another substantial rally following its Q3 earnings. Tesla TSLA shareholders are thrilled to see their investment make its way back into the $300s and towards its all-time high of $385. The stock has been bouncing between the low to mid $200s and high $300s for 3 years now.

The latest Tesla earnings release has driven it into one of the strongest and fastest rallies in the stock's history, and it doesn't seem to be slowing. TLSA could be well on its way to surpassing its all-time high.

Recent Activity

Tesla has a history of either misguiding analysts or leaving them in the dark regarding future quarterly results. This most recent quarter was no exception.

I sit here and think to myself, what are the possible reasons that an investor relations team would want such significant surprises in their earnings reports? The conclusion that I came to is that they want to keep TSLA relevant, and with huge swings in share prices from big headlines and big earnings surprises keeps TSLA at the forefront of traders' minds.

I know that traders looking for short term gains are only a small subset of the investor community. Still, it makes up a large portion of daily volume, and volatility increases volume, which in turn increases liquidity.

Regardless, this most recent earnings report proved to be a significant surprise on the EPS side of the equation. Analysts were expecting a sizable loss, but instead, the company demonstrated rich profitability. Some of this can be attributed to the hampered expectations from a disappointing Q2, and some could be attributed to an investor relations team that likes to keep the market guessing.

The biggest news coming out of Q3 earnings, from my perspective, is the ahead of schedule Shanghai Gigafactory. Ahead of schedule is something you rarely hear from Tesla, who has had a history of overpromising and under-delivering. This year may be the year that they finally hit their targets and keep their promises.

The enthusiastic and eccentric CEO Elon Musk promised to have 360,000-400,000 vehicles delivered by the end of fiscal 2019. This was something quickly shrugged off by investors, as this visionary's grandiose expectations are often unattainable.

Tesla has been able to deliver over 95,000 cars in Q2 and 97,000 in Q3, which were both record delivery figures for the company. If the company can deliver 105,000 vehicles in Q4, then it will have hit Musk's seeming unattainable guidance.

Shanghai Gigafactory

China is the largest electric vehicle market in the world by a substantial amount, almost doubling that of the US. Tesla's new Shanghai plant will give the company direct access to this market and allow them to cut costs substantially. In a letter to shareholders, Elon said that this factory was 65% cheaper than any Model 3 factory built in the United States.

The cost to the Chinese consumer will fall due to expect cost reductions and also allow the firm to bypass the tariffs associated with the US-China trade conflict.

The Gigafactory is currently in trial production and plans to have the plant fully operational this quarter. In phase 1, Tesla expects to be producing 250,000 cars for China annually and to reach its capacity of 500,000 units in the years moving forward.

The firm also said it would announce the location of its highly anticipated European factory by the end of the year — this is one more step for Tesla in its domination of the automotive world.

Some investors are still concerned about the steep competition in China, as well as signs of a global economic slowdown that would undoubtedly impact Tesla's sales.

Competition & Autonomous Vehicles

Every major automotive company is working on some form of an electric vehicle, including companies like Toyota TM, Ford F, and General Motors (GM). These firms still have a long way to go before they are at the same level as Tesla, and by then, Tesla will be miles ahead.

Autonomous driving is the future of transportation, despite concerns with regulatory pushback. Self-driving electric vehicles are going to rule the roads of the future. Google's GOOGL Waymo has been building out its neural-network for effective autonomous driving but it is still considerably behind Tesla, who already has around 800k vehicles on the roads with self-driving capabilities. Uber UBER and Lyft LYFT are also in the autonomous car race, as this would significantly reduce driver costs.

There is still a road of regulatory hurdles ahead before a car can legally drive on its own.

Recent performance

Tesla has been trading all over the board since the stock was introduced to the public markets in 2010. This trend of volatility has not faltered in recent years. From mid-December of last into early June, TSLA fell over 50%, to its lowest price in more than 3 years, due to liquidity concerns.

The stock bounced back on a $3 billion resurgence of capital from debt and equity sources, as well as record-breaking delivery figures. TSLA stumbled a little from a miss in its Q2 earnings report but quickly regained its momentum with another set record-breaker in quarterly deliveries. This propelled the stock into earnings, with gains of over 40% since the beginning of October.

Take Away

TSLA is driving returns for investors, and I expect this to continue as it slowly takes control of the global EV market. The company is now producing vehicles in China and soon will be producing them in Europe on its road to global automotive domination. This is a high-risk investment, but with high risk comes with high reward. 

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