Tesla’s Stock Hits High at $420…Have the Shorts Lost?
As a fan of Tesla, I was extremely dismayed early this year when Tesla posted an unexpected $700 Million loss in the first quarter of the year. For the first time in the company’s history, I considered the possibility that Tesla might go bankrupt. My how things have changed in such a short time.
In late 2018, Elon Musk, CEO, predicted that Tesla would just about break even in Q1 2019, and maybe even eek out a small profit. For this reason it was shocking for see Tesla report such a huge loss at the end of Q1. It was disappointing and discouraging that Musk could have forecast so poorly. The massive loss was fodder for the Tesla short selling community who used this loss as evidence that Tesla would never become a sustainable business. Since then, however, the short sellers have been hurting…badly. How did Tesla turn this around so quickly?
Tesla began making efforts to trim its expenses after a painful Q1. This included changes to the Tesla referral program,closing some Tesla stores…etc. It also included laying off about 7% of the company’s workforce to trim overhead.
New Sources of Revenue
The year 2019 is the first year that the Model 3 was made available in most countries. This has resulted in a huge upswing in Model 3 sales with about 216,000 of the cars sold in the first three quarters alone. Tesla also recently “relaunched” some of its Tesla Energy products, including battery packs and solar panels. Many Tesla Energy products were neglected as the company poured money into the Model 3. Now that the Model 3 production is in full swing, these products are coming back to the fore.
In 2019. Tesla built one of the world’s largest factories in Shanghai, China in an astonishing 10 months. Called the Gigafactory 3, or GF3, this factory is the first of its kind; it is the first foreign automaker to operate on Chinese soil without a Chinese joint venture. It is also ideally placed in the world’s largest electric vehicle market. GF3 allows Tesla to bypass China’s import tariffs and sell its cars at higher margins and at lower costs in the country.
Tesla’s Model Y is also ahead of schedule. Originally scheduled to begin production in Fall of 2020, Tesla now says that the vehicles will begin shipping in Summer. Rumor has it that the vehicle might come even earlier…in late spring. The Model Y is the sister vehicle to the Model 3 and is competing in a larger product market. The Model Y could end up being more profitable and ultimately more successful than the Model 3.
With 250,000 preorders for the ungainly Tesla Cybertruck, Tesla looks to have another hit vehicle on its hands. The Cybertruck will be competing in the North American truck market, one of the largest vehicle segments and certainly among the most profitable. Tesla has a lot to gain from this vehicle in the coming years.
The worst appears to be over for Tesla. The relaunch of Tesla Energy products, the upcoming Roadster 2.0, Tesla Semi, Cybertruck, and Model Y should provide plenty of growth opportunity in the coming years. Now that the Model 3 production ramp is behind us, Tesla has no where to go but up. The stock price is reflecting this newfound optimism.