Tesla shares—already near all-time highs—are poised to start 2020 with a bang.
Shares were up 1.9% in premarket trading following a Reuters report that said the electric-vehicle pioneer will begin delivering cars from its Shanghai factory on Jan. 7. That is in line with expectations, showing investors that Elon Musk’s company can hit bold time lines. Business momentum is on the side of bullish investors in Tesla (ticker: TSLA) right now.
The Fremont, Calif.,-based auto maker began construction of the so-called gigafactory in Shanghai in January 2019. Delivering cars a year after breaking ground is quite a feat and investors are taking notice.
“While part of this recent rally has been a massive short covering, it has also been driven by underlying fundamental improvement as the company’s ability to impressively not just talk the talk but walk the walk has been noticed by the Street,” Wedbush analyst Dan Ives wrote in a Thursday research report. He rates shares the equivalent of Hold and has a $370 price target for the stock.
Shares are up more than 70% over the past three months, far exceeding comparable gains of the S&P 500 and Dow Jones Industrial Average. Better-than-expected third-quarter earnings catalyzed the rally. But Tesla bulls can also point to the unveiling of Cybertruck and the success of the Shanghai plant as evidence Musk is on the right path.
The rally, as Ives pointed out, has punished short-sellers—bearish investors actively betting on price declines. Tesla short interest—the amount of stock borrowed and sold compared with total shares available for trading—is about 8 to 10 times higher than average. Precise ratios are difficult because short-selling data is reported with a lag.
Fundamentally, the Chinese factory is important for the future of Tesla for a couple of reasons: size and taxes.
“China is the largest electric-car market in the world,” Musk said at the company’s recent annual shareholder meeting. “And to date, we have had to pay import duties.” The import levees paid by Chinese Tesla buyers range from 15% to 40%. What’s more, local production is required to access some local electric-vehicle credits in China.
Tax credits, to this point, have been a help for electric-vehicle makers around the globe. The upfront cost of electric vehicles is higher than similar fossil-fuel powered cars. However, refueling costs—which amount to the difference between electricity and gasoline prices—favor EVs.
Accessing China’s tax credits is also important for Tesla because U.S. Tesla buyers lost their federal tax credit on Jan. 1. Buyers won’t be able to claim a $1,875 deduction for buying an EV in 2020. Tesla Model 3 buyers in California, however, are still eligible for a $2,000 tax credit.
Still, the removal of U.S. federal tax credits might have helped near-term results by prodding buyers to make purchases before the credits expired. The company will report fourth-quarter production and deliveries in the next few days. Investors expect 106,000 deliveries, according to Ives. “Both U.S. consumer demand for Model 3 and most important European strength should likely drive upside this quarter and enable Tesla to comfortably hit its vehicle delivery guidance of 360,000 to 3000,000 units for [2019],” he said.
That’s more good news for investors.
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Canaccord analyst Jed Dorsheimer also expects strong deliveries when Tesla reports numbers. He raised his price target on Tesla stock Thursday morning form $375 to $515 a share. Dorsheimer rates Tesla stock the equivalent of Buy.
Fourth-quarter numbers will be critical to demonstrating business momentum. But 2020 is rife with milestones for Tesla investors to watch, including the production ramp-up of the Model 3 in the U.S. and China and the debut of Tesla’s small sport-utility vehicle, the Model Y.
And investors, of course, will want to see more profits in coming quarters, like the ones earned in Tesla’s third quarter.
Write to Al Root at allen.root@dowjones.com
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January 02, 2020 at 09:11PM
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Tesla Stock Is Climbing on the Imminent Start of Production in Shanghai - Barron's
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