Tesla’s stock (TSLA) is on another rally, and it is getting a boost from Wall Street analysts as the usual short arguments are starting to fade.
After a tough start to the year, Tesla’s third quarter has launched a stock rally.
Tesla reported a surprise profit during the last quarter.
It isn’t the first time that the automaker has reported a profit, but it has had difficulties sustaining those profits.
Several analysts are now adjusting their models, and one of them, Phillippe Houchois from Jefferies, says that the results were “consistent with sustained profitability.”
He wrote in a report to clients earlier this week:
Stabilization in 2019 sets a better foundation for a return to growth in 2020 revenue and earnings. We value the absence of legacy issues, net growth in revenue and earnings, and persistent technology edge from battery to autonomous.
Houchois maintained a Buy rating on Tesla, but he raised the price target from $300 to $400.
Jefferies’ Phillippe Houchois is ranked No. 767 out of 5,642 analysts on TipRanks with a 60% success rate and a 14% average return. He has been maintaining a buy rating on Tesla all year:
That’s the big question: Is Tesla going to be able to sustain those profits?
I think they could go back in the red, but if they do, I think it would only be slightly in the red, and not the losses we are used to with Tesla.
Tesla Gigafactory 4 in Europe is going to require a significant capital investment, but the bulk of that is coming next year, and I have to assume that Tesla is going to wait until it has ramped up production at Gigafactory 3 in China.
That’s why I doubt we will see significant loses from Tesla again, which is taking the biggest argument away from the shorts.
At first, it was “demand is falling,” and then it was, “It doesn’t matter if there’s demand because they don’t make money on the cars they are selling.”
Those arguments are going away, and now the shorts are resorting to, “Tesla is lying and defrauding people.”
Tesla is getting better at manufacturing cars profitably. Once Model Y gets into production in Fremont and Gigafactory 3, Tesla will be producing around 1 million cars per year and the shorts will become extremely quiet.
At that point, they will be able to finance most if not all of their projects while staying in the black.
Full disclosure: I am long TSLA and loving it.
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