Tesla’s Semi & Bulls Long on Emotion Will See Firm Rise Above September Highs

By Oisin Breen, Research

This article starts with a disclaimer. We have written in the past about Tesla (TSLA), and not been wholly positive about the narrative that saw its share price seemingly far outpace its actual performance. That said, we did not discount the bull case, nor the fact that in many ways Tesla has long traded as more than just a stock, but essentially as a piece of the emotive real estate, emblematic of the future yet to come. Regardless of how you view the firm, the present moment represents an interesting one as far as taking a position in TSLA is concerned. Put simply, as driverless momentum finally seems to be really clicking into gear, Tesla is trading far below its September levels, and may thus present the opportunity of a real return in the next few months.

Tesla’s share price takes an 18% dip since September. Does this represent a buy opportunity?

 

Image not Fundamentals Drive Tesla’s Value

The value of Tesla is not at present to be found in its financial data. As has long been the case, the firm’s financials do not make for the most wonderful reading. Put simply, for a fourteen-year-old company driven by realizing the future, it is quite impressive that one vision of the future that they have yet to realize is the making of an actually substantial profit. Losses of -$2.92 per share in Q3 are basically par for the Tesla course at the moment, regardless of the fact that the firm’s rising revenues of $2.98bn beat guidance by $40m.

TSLAEPS

Tesla EPS – 5 Years, a long history of losses.

The firm’s financials notwithstanding, however, the fact is that Elon Musk is essentially as long as long can be on Tesla, so the firm is going nowhere. This means that standard assumptions about profitability and the firm’s numbers are not as cut and dry as they would be without such deep pockets behind it. Given this, the bet on Tesla is essential that the firm will eventually make a profit, and for the time being most people continue to believe this.

 

At present, Tesla trades at at an 18% discount on its September high, at $312.47. Tesla has an average price target of $338.65. The firm has that September target to aim for, and some analysts, such as those at Nomura, still forecast huge growth up to a level $500 per share. Right now may well prove an interesting time to buy.

income statement 5year

Tesla’s 5 year income statement does not paint the most beautiful picture,

 

Freight not Cars is the First Real Disruptor

For some years now, the media has been awash with stories about driverless cars, and they are at present being trialled. The British government, for instance, has just warned the million people who are likely to see their incomes wiped out by the driverless revolution to retrain or face the consequences. Driverless cars are coming. Electric cars, like Tesla’s model three represent an intermediate stage at present between the current system and that driverless future. This being the case, whilst reports of huge production delays at Tesla augur poorly for the firm’s short term finances, CEO Elon Musk’s Teflon veneer, and his company’s legitimate technological aspirations, should see the production furore fade out of view in the firm’s rear view mirror.

5year price

Tesla’s Five Year Share Price suggests the only way is up. Source: Bloomberg

What really is a game-changer, however, is the Tesla Semi. Capable of 500 miles between charges, and hauling 80,000 pounds, with an enhanced auto-pilot that enables automatic breaking, automatic lane-keeping, and automatic lane-departure, the truck that rolls out in 2019 may be the product that starts to see Tesla really make a profit. The Tesla Semi is designed to bolster infrastructure, and ultimately is a harbinger of a future where the humble trucker goes extinct. 70% of goods in the U.S. move by truck, goods worth some $719bn in revenue, at a CAGR of 3.4%. In the future these goods will be moved remotely. Automating this market would significantly increase hauling firms profits, and in a world where so much of these firms’ operation is automated, seeing truckers drinking coffee outside state-of-the-art automated warehouses must grate with the proverbial bean-counters. Adopting Tesla’s system is surely going to be of interest.

 

It is not only what the Tesla Semi represents that is impressive, but also its price. Expected to sell at between $150,000 and $200,000, the model depending — just $60,000 more expensive than a diesel powered semi – Tesla’s truck is likely to cost 20% less to run, meaning after a million miles it has paid for just under one and a half times of its cost price in savings. The very fact that both Canadian giant Loblaw (L:CN) and U.S. behemoth Walmart (WMT) have already placed orders tells its own story.

 

Ultimately, whilst electric and driverless cars will be a part of the future, consumer up-take may prove slow for a myriad of reasons, inclusive of safety concerns and force of habit. The transport industry is likely to suffer far less from such worries, and to have far more incentive to be real first adopters in the market. Thus, it may well be that Autumn 2017 will not be remembered as a poor period for Tesla, but instead as a heralding of the haulage future.

 

Conclusion

VisionGain

Continuing growth for the AV market continues to climb. Source: VisionGain

 

There is, of course, an element of irony in having long held mixed thoughts about Tesla, whilst at the same time being more than impressed by their new truck. That said, infrastructure is big business, and infrastructure firms are reliable customers on whom to really base a profitable business. Moreover, revolutionizing the arteries of our interconnected cities would likely be sufficient to win over any doubters of a driverless future.

 

As far as investing in Tesla is concerned, however, two things stand out that make the company an interesting buy proposition for December. First of all, is the relative lack of share price gain since the Tesla Semi’s introduction, which if you are convinced of the long-term need to update the trucking infrastructure is surprising. Secondly, Tesla’s current share price is by its own standards lower than should be expected. It is unlikely that the Tesla bull has finally given up the ghost, and the suspicion is that they are as emotionally long on Tesla as Musk himself is, meaning the firm’s share price is almost certain to rise. Unless the bulls truly have cashed in, a return at least to the level of September highs (+18%) looks very much on the cards.

Ten ways autonomous driving_ex1

The Forecast Growth of Driverless Transport. Source: McKinsey.

 

CFDs, spread-betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.

 

 

 

 

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